participate in the september 26, 1998, coordinated test in which fedwire, chips, and swift are participating. like most information technology environments, ours are composed primarily of vendor hardware and software products. to assess the year 2000 readiness of these environments, as well as our building systems such as vault and climate control systems, we have created an automated inventory of the vendor products that we use and are tracking the year 2000 compliance status of those products. although the federal reserve has made progress in independently testing vendor products, we will continue these efforts. in prior testimony, i have noted the critical dependence of banks on telecommunication services and the need to ensure the readiness of telecommunication service providers. to foster a better understanding of the importance of information sharing by the telecommunications industry, i wrote to federal communications commissioner powell about this issue. commissioner powell has been responsive and has provided us and others with information regarding the fcc ’ s oversight and plans. the federal reserve is also participating in the telecommunications sector group of the president ’ s council on year 2000 conversion. in addition, the federal reserve is monitoring telecommunication carriers to assess whether those used by the federal reserve will be year 2000 compliant. we are pleased with the responsiveness of the telecommunications industry : plans for industry testing are well under way, with participation from the major service providers, as well as their suppliers. contingency planning as the nation ’ s central bank, the federal reserve is actively engaged in contingency planning for both operational disruptions and systemic risks. an internal cdc council consisting of senior managers is coordinating contingency planning across the federal reserve ’ s various functions and is fostering a cohesive approach to internal readiness and interaction with the financial community. in general, the banking industry ’ s focus has also progressed from the renovation of systems to business continuity and contingency planning. contingency planning for the federal reserve includes payments systems, currency availability and distribution, information processing, the discount window, and the supervision function. we will also play an important role in coordinating with the financial community concerning issues such as systemic risk and cross - border payments. operational contingency the federal reserve ’ s plans for operational continuity build on existing contingency plans. as you know, we have long maintained comprehensive contingency plans that are routinely tested and have been implemented during natural disasters and other disruptions. these plans cover our internal systems, as well as the services we provide to depository institutions. in june 1998, each of the federal reserve ’ s business offices completed

the global financial system has weathered many storms - - the market turmoil in the fall of 1998, the preparations for y2k, devastating terrorist attacks in 2001 and a recognition of the threat of future attacks, and major accounting scandals in 2002. as i will discuss in more detail shortly, these developments have been important in shaping the international central banking policy agenda. key financial trends before exploring some of these issues in a bit more depth, it seems useful to consider some of the longer - run trends that have set the backdrop for much of the work of central banks in international forums dealing with financial efficiency and stability. one clear trend in many countries is an increase in market concentration in the banking sector and in other sectors of the financial services industry. in the united states, for example, the share of assets held by the top ten commercial banks has risen from about 30 percent in 1995 to about 45 percent today. outside the commercial banking sector, consolidation has resulted in a small number of financial firms doing much of the equity and bond underwriting throughout the world. a second trend is the steadily increasing share of total credit provided directly through markets rather than through intermediaries like banks. for example, in the united states, the share of bank loans in the total outstanding debt of domestic nonfinancial corporations has declined from about 21 percent at the end of 1990 to 12 percent at the end of last year. the growing importance of market - based finance has not, however, signaled a decline in the commercial banking industry. u. s. banks, for example, have enjoyed record profits that stem, in part, from their activities in securities markets and in the development of new instruments. indeed, banks ’ development of sophisticated risk - management techniques helped to fuel the growth of new financial instruments. more generally, by providing lines of credit and assuming other off - balance - sheet exposures, banks support the advancement and ongoing operation of financial markets and lower the costs of market - based finance for many market participants. another important trend has been the expanding scope and availability of financial instruments. the global financial system is still well short of the theoretical ideal of complete financial markets, but clearly it is moving in that direction. market participants now use an array of financial instruments that, twenty years ago, were not actively traded and, in many cases, did not even exist. the growth of derivatives is a useful example of this trend. according to the december 2003 survey of derivatives conducted by the bank for international settlements ( bis ), the