well. we are fortunate, for financial markets have had no realistic alternative other than to depend on the chief executive officer to ensure an objective evaluation of the prospects of the corporation. apart from a relatively few large institutional investors, not many existing or potential shareholders have the research capability to analyze corporate reports and thus to judge the investment value of a corporation. this vitally important service has become dominated by firms in the business of underwriting or selling securities. but, as we can see from recent history, long - term earnings forecasts of brokerage - based securities analysts, on average, have been persistently overly optimistic. three - to five - year earnings forecasts for each of the s & p 500 corporations, compiled from projections of securities analysts by i / b / e / s, averaged almost 12 percent per year between 1985 and 2001. actual earnings growth over that period averaged about 7 percent. perhaps the last sixteen years, for which systematic data have been available, are an historical aberration. but the persistence of the bias year after year suggests that it more likely results, at least in part, from the proclivity of firms that sell securities to retain and promote analysts with an optimistic inclination. moreover, the bias apparently has been especially large when the brokerage firm issuing the forecast also serves as an underwriter for the company ’ s securities. on topics such as nonfinancial corporate governance, which is not in the federal reserve board ’ s jurisdiction, i am obviously speaking for myself. in addition, my comments do not represent the official views on this subject of the president ’ s working group on financial markets, of which i am a member. the performance of securities analysts may improve as a result of the recent joint initiative by the national association of securities dealers and the new york stock exchange to require brokerage firms to include in research reports the distribution of the firms ’ ratings, among “ buy, ” “ sell, ” and “ hold, ” for example. brokerage firms must also include in research reports a record that indicates when an analyst assigned or changed a rating for a company. i suspect that with the underlying database publicly available, it is just a matter of time before the ex post results of analysts ’ recommendations are compiled and published on a regular basis. i venture to say that with such transparency, the current upward bias of analysts ’ earnings projections would diminish rather rapidly, because investment firms are well aware that security analysis without credibility has no market value. * * *

), " the supervisory capital assessment program, " speech delivered at the federal reserve bank of atlanta 2009 financial markets conference, held in jekyll island, ga., may 11. the average tier 1 common ratio as of june 30, 2009, has been adjusted to reflect the completion of citigroup's exchange offer in september 2009. see group of twenty ( 2009 ), " leader's statement : the pittsburgh summit, " press release, september 25. tendency of current capital requirements to promote credit growth in booms and to restrict credit during downturns, the federal reserve has supported international efforts to develop capital standards that would be countercyclical. countercyclical standards would require firms to build larger capital buffers in good times and allow them to be drawn down – but not below prudent levels – during more - stressed periods. we also are working with our domestic and international counterparts to develop capital and prudential requirements that take account of the systemic importance of large, complex firms whose failure would pose a significant threat to overall financial stability. options under consideration include assessing a capital surcharge on these institutions or requiring that a greater share of their capital be in the form of common equity. for additional protection, systemically important institutions could be required to issue contingent capital, such as debt - like securities that convert to common equity in times of macroeconomic stress or when losses erode the institution's capital base. the crisis also highlighted weaknesses in liquidity management by major firms. short - term secured funding of long - term, potentially illiquid assets – through repurchase agreements and asset - backed commercial paper conduits, for example – became unavailable or prohibitively costly during the worst phases of the crisis, both here and abroad. in response, the federal reserve helped lead the basel committee's development of revised principles for sound liquidity risk management, which in the united states are being incorporated into new interagency guidance that reemphasizes the importance of rigorous stress testing to determine adequate liquidity buffers. 6 together with our domestic and international counterparts, we are also considering quantitative standards for liquidity exposures similar to those for capital adequacy, with the goal of ensuring that internationally active firms can fund themselves even during periods of severe market instability. with supervisory encouragement, large banking organizations have, for the most part, already significantly increased their liquidity buffers and are strengthening their management of liquidity risk. in addition to insufficient