##os ) whose issuance increased sharply in 2018 and has since moderated somewhat. many large banks originate leveraged loans with an intent to distribute, often to clos. while the direct exposures of the banking system in the form of loan portfolios and warehousing exposures can be monitored, there are also indirect exposures, including through bank investments in clos and credit lines, which bear vigilance. by contrast, nonbank exposures are harder for us to track. to date, the default rate on leveraged loans has been at the low end of its historical range, and corporate credit conditions have been favorable, with low interest expenses and low expected default rates. however, if spreads rise sharply or economic conditions deteriorate significantly, we could see downgrades, refinancing challenges, rising delinquencies and defaults, and losses to investors. recognizing that financial imbalances played a key role in each of the past three u. s. downturns, policy should seek to moderate financial vulnerabilities when they are likely to materially exacerbate an economic downturn, leading to deeper declines in output and higher levels of unemployment. both economic theory and econometric evidence point to the risk that excesses in corporate debt markets could amplify adverse shocks and contribute to job losses. overindebted businesses may face payment strains when earnings fall unexpectedly, and they may respond by pulling back on employment and investment. the slowdown in activity lowers investor demand for risky assets, thereby raising spreads and depressing valuations. as business losses accumulate, and delinquencies and defaults rise, banks are less willing or able to lend. this dynamic feeds on itself, potentially amplifying downside risks into more serious financial stresses or a downturn. 3 / 4 bis central bankers'speeches recognizing this feedback loop between financial imbalances and the macroeconomy, in addition to strong through - the - cycle regulatory requirements, our toolkit includes a countercyclical capital buffer ( ccyb ). the ccyb is intended to require the nation ’ s largest banks to build capital when conditions are favorable to sustain resilience for times when there is elevated risk of above - normal losses, which often follows periods of rapid asset price appreciation or credit growth. ccyb requirements are intended to lean against rising risks at a time when the degree of monetary tightening needed to achieve the same goal could be inconsistent supporting

i suspect, to the continued credibility of the fed ’ s independence from political interference, along with the adoption of the explicit inflation target of 2 percent. to put this point clearly, the concern over the effects of political interference in monetary policy remains as valid in practice when inflation is too low as when inflation is too high. that is primarily because political horizons are typically shorter than those that need to be taken into account in making monetary policy decisions. recently, there have been proposals to restrict monetary policy independence. one proposal, labeled “ audit the fed, ” would subject the federal reserve ’ s conduct of monetary policy to unlimited congressional policy audits. 16 ( financial audits are already conducted regularly. ) 17 another proposal would require the fomc to adopt and follow a specific equation in setting monetary policy and to face immediate congressional hearings and investigation by the gao whenever the fomc deviates from the policy dictated by that equation. 18 in the terminology i have used in this speech, these proposals could accurately be described more as restrictions on the federal reserve ’ s instrument independence than as measures that would increase transparency or accountability. they would thus represent a departure from the modern governance structure that has come to characterize the fed and leading central banks around the world. since the federal reserve is already very transparent about its monetary policy decisions, review by the gao would not meaningfully augment communications with the public but would instead reflect an effort by the congress to influence the fed ’ s policy decisions. we should recognize that if a gao review and, likely, a congressional hearing were held every time a monetary policy decision deviated from a simple equation, as has been proposed, the fed would be subjected to the very sort of political pressure from which experience suggests central banks should be independent. instead, a modern governance framework calls for the political system to give the central bank a mandate along with the operational freedom to pursue that mandate, supported by transparency and accountability. 19 in addition, using a central bank as a source of revenue to cover the cost of a fiscal program is dangerous to its independence. for example, recently some have proposed that the fed be used to provide revenue to fund specific government initiatives, which amounts to quasi - see the summary of economic projections submitted in conjunction with the september 2015 fomc meeting, an addendum to board of governors ( 2015 ). see federal reserve transparency act of 2015, h. r. 24, 114 cong. ( 2015 ) ; and federal reserve transparency act of 2015, s