and the other major economies, and with the u. s. treasury to strengthen the financial foundation of the major investment and commercial banks. we have encouraged a significant increase in the quality of public disclosure. we have supported efforts that have brought a very substantial amount of new equity capital into many financial institutions. these efforts will help mitigate the risk of a deeper credit crunch. and even as the federal reserve has worked to mitigate the liquidity pressures in markets by implementing a new set of lending facilities, we have worked with the sec and others to ensure that the major institutions are strengthening their liquidity positions and funding strategies. we are also initiating important steps to strengthen the financial infrastructure. we are in the process of encouraging a substantial increase in the resources held against the risk of default by a major market participant across the set of private sector and cooperative arrangements for funding, trading, clearing and settlement of financial transactions that form the " centralized infrastructure " of the financial system. we have begun to review how to reduce the vulnerability of secured lending markets, including triparty repo by reducing, in part, the scale of potentially illiquid assets financed at very short maturities. this afternoon, 17 firms that represent more than 90 percent of credit derivatives trading, meet at the federal reserve bank of new york with their primary u. s. and international supervisors to outline a comprehensive set of changes to the derivatives infrastructure. this agenda includes : • the establishment of a central clearing house for credit default swaps, • a program to reduce the level of outstanding contracts through bilateral and multilateral netting, • the incorporation of a protocol for managing defaults into existing and future credit derivatives contracts, and • concrete targets for achieving substantially greater automation of trading and settlement. these changes to the infrastructure will help improve the system's ability to manage the consequences of failure by a major institution. making these changes will take time, but we expect to make meaningful progress over the next six months. the set of ongoing and near - term initiatives i just outlined are only the beginning and should be considered a bridge to a broader set of necessary changes to the regulatory framework in the united states and globally. i believe the severity and complexity of this crisis makes a compelling case for a comprehensive reassessment of how to use regulation to strike an appropriate balance between efficiency and stability. this is exceptionally complicated, both in terms of the tradeoffs involved and in building the necessary consensus in the united states and the world. it is going to require significant changes

to the way we regulate and supervise financial institutions, changes that go well beyond adjustments to some of the specific capital charges in the existing capital requirement regime for banks. we have to recognize, however, that poorly designed regulation has the potential to make things worse. we have to distinguish carefully between problems the markets will solve on their own and those markets cannot solve. we have to acknowledge not just that regulation comes with costs, but that if not carefully crafted it can distort incentives in ways that may make the system less safe. and we have to focus on ways regulation can mitigate the moral hazard risk created by the actions central banks and governments have taken and may take in the future to avert systemic financial crises. i am going outline some broad proposals for reform, focusing on the aspects of our system that are most important to reducing systemic risk. these proposals do not address a myriad of other important aspects of regulatory policy, including consumer protection issues in the mortgage origination business, the future role of government and government - sponsored enterprises in our housing markets, and many others. any agenda for reform has to deal with three important dimensions of the regulatory system. • regulatory policy. these are the incentives and constraints designed to affect the level and concentration of risk - taking across the financial system. you can think of these as a financial analog to imposing speed limits and requiring air bags and antilock brakes in cars, or establishing building codes in earthquake zones. • regulatory structure. this is about who is responsible for setting and enforcing those rules. • crisis management. this is about when and how we intervene and about the expectations we create for official intervention in crises. here are a few broad points on each of these. regulatory policy the objectives of regulatory policy should be to improve the capacity of the financial system to withstand the effects of failure and to reduce the overall vulnerability of the system to the type of funding runs and margin spirals we have seen in this crisis. first, this means looking beyond prudential supervision of the critical institutions to broader oversight of market practices and the market infrastructure that are important to market functioning. two obvious examples : we need to make it much more difficult for institutions with little capital and little supervision to underwrite mortgages, and we need to look more comprehensively how to improve the incentives for institutions that structure and sell assetbacked securities and cdos of abs. and supervision will have to focus more attention on the extent of maturity transformation taking place outside the banking system. second, risk -