policy – broadly defined – tended to countenance investor expectations. at year - end 2007, the outstanding public debt of fannie mae and freddie mac totaled about $ 5. 0 trillion, roughly comparable with the publicly held treasury debt of $ 5. 1 trillion, and spreads to treasuries on their senior debt amounted to about 30 to 50 basis points, even though the institutions were thinly capitalized relative to their asset composition and risk characteristics. in the fall of 2008, however, gse senior debt spreads widened significantly to more than 500 basis points. market participants grew increasingly skeptical of the gses'financial and operational wherewithal and were uncertain of the depth of government support. when markets decided to test policymakers, as markets are especially wont to do during panics, the treasury was forced to intercede, effectively taking control of the entities. congress authorized successive administrations to take forceful actions, including appropriations of up to $ 200 billion to - date, to assure investors and counterparties that the institutions would remain solvent. these efforts, while necessary and well intended, have not completely resolved the uncertainty around the gses to market participants. indeed, even after extraordinary actions most recently by the federal reserve to improve liquidity and market functioning in the agency debt markets, confidence in the gses is less than markets were long accustomed to before this period began. when presumptively risk - free, highly liquid assets backed by the highest - grade sovereign are subject to large swings in value, the risk - return profile of virtually all other assets becomes highly uncertain. the resulting portfolio reallocation boosts demand for treasury securities, and reduces demand for assets that are genuinely riskier, placing upward pressure on risk premiums across a wide range of markets. in addition, financial firms that had assumed that their holdings of gse debt were as good as cash were forced to reassess the adequacy of their liquidity positions, adding to balance sheet pressures and leading to even greater safehaven demands for treasury securities. across a broad range of financial institutions and financial markets, an unhealthy mix of recession dynamics and panic conditions appear at work. but, in my view, it is predominantly the latter – the uncertainty with respect to financial intermediation and the corresponding breach of articles of faith – that have exacerbated the downturn. conclusion let me offer several concluding observations that may help frame a new foundation for growth and ensure that discarded articles of faith are repaired,

financial crisis in the 1990s. the bank ’ s response next, i will talk about the bank ’ s response. the bank has enhanced monetary easing since march, implementing three measures as follows. the first is the special program to support financing mainly of firms. the total size of this program is about 110 trillion yen. specifically, the bank decided to purchase cp and corporate bonds within about 20 trillion yen, which is equivalent in size to a quarter of the japanese market. in addition, it introduced funding measures of about 90 trillion yen to encourage lending by financial institutions. these include a scheme in which the government takes the credit risk of lending by financial institutions to small and medium - sized firms and the bank provides funds to those financial institutions on favorable terms. this represents a case of cooperation between the government and central bank to support corporate financing, while making their respective 1 / 2 bis central bankers'speeches roles clear. the second is an ample provision of yen and foreign currency funds. as for the yen funds, the bank decided to purchase a necessary amount of jgbs without limit, with a view to maintaining stability in the bond market and stabilizing the entire yield curve at a low level. regarding foreign currency funds, the bank has provided a large amount of u. s. dollar funds based on cooperation with five other major central banks. the third is active purchases of etfs and j - reits. the aim is to prevent firms ’ and households ’ sentiment from deteriorating through volatility in financial markets, thereby supporting positive economic activity. in addition to the enhancement of monetary easing, the bank has made regulatory responses in order to ensure financial system stability. based on an international agreement, the full implementation of the finalized basel iii standards has been deferred by one year, and banks have been encouraged to use their capital and liquidity buffers. moreover, the bank announced with the financial services agency in april an easing of regulation on the leverage ratio requirement. financial system stability provides support for corporate financing and is also a prerequisite for monetary policy to exert its maximum effect. the bank ’ s response has already had considerable effects. japan ’ s financial system has maintained stability on the whole, and the lending stance of financial institutions has been active. under these circumstances, bank lending for may registered the highest increase in the last 30 years, and cp and corporate bond issuances have increased significantly. tension in financial markets has abated. the bank will continue to support financing mainly of firms and