support members of an associated group of companies. experienced bank supervision cannot fully substitute for poor lending procedures, but presumably it could encourage better practice. apparently even that has been lacking in many economies. and training personnel and developing adequate supervisory systems will take time. i pointed earlier to cross - border interbank funding as potentially the achilles ’ heel of the international financial system. creditor banks expect claims on banks, especially banks in emerging economies, to be protected by a safety net and, consequently, consider them to be essentially sovereign claims. unless those expectations are substantially altered - - as when banks actually incur significant losses - - governments can be faced with the choice either of validating those expectations or of risking serious disruption to payments systems and to financial markets in general. arguably expectations of safety net support have increased the level of cross - border interbank lending from that which would be supported by unsubsidized markets themselves. this would suggest resource misallocation. accordingly, it might be useful to consider ways in which some added discipline could be imposed on the interbank market. such discipline, in principle, could be imposed on either debtor or creditor banks. for example, capital requirements could be raised on borrowing banks by making the required level of capital dependent not just on the nature of the banks ’ assets but also on the nature of their funding. an increase in required capital can be thought of as providing a larger cushion for the sovereign guarantor in the event of a bank ’ s failure. that is, it would shift more of the burden of the failure onto the private sector. alternatively, the issue of moral hazard in interbank markets could be addressed by charging banks for the existence of the sovereign guarantee, particularly in more vulnerable countries where that guarantee is more likely to be called upon and whose cost might deter some aberrant borrowing. for example, sovereigns could charge an explicit premium, or could impose reserve requirements, earning low or even zero interest rates, on interbank liabilities. increasing the capital charge on lending banks, instead of on borrowing banks, might also be effective. under the basle capital accord, short - term claims on banks from any country carry only a twenty percent risk weight. the higher cost to the lending banks associated with a higher risk weight would presumably be passed on to the borrowing banks. borrowing banks, at the margin, might reduce their total borrowing or shift their borrowing to nonbank sources of funds, perhaps with the shift facilitated by the lending banks, who

new monetary policy framework at our september fomc meeting, the committee made important changes to our policy statement that upgraded our forward guidance about the future path of the federal funds rate, and that also provided unprecedented information about our policy reaction function. we indicated that, with inflation running persistently below 2 percent, our policy will aim to achieve inflation outcomes that keep inflation expectations well anchored at our 2 percent longer - run goal. we said that we expect to maintain an accommodative stance of monetary policy until these outcomes — as well as our maximum - employment mandate — are achieved, and also that we expect it will be appropriate to maintain the current 0 to 1 / 4 percent target range for the federal funds rate until labor market conditions have reached levels consistent with the committee ’ s assessments of maximum employment, until inflation has risen to 2 percent, and until inflation is on track to moderately exceed 2 percent for some time. we also stated that the federal reserve will, over coming months, continue to increase our holdings of treasury securities and agency mortgage - backed securities at least at the current pace to - 4sustain smooth market functioning and help foster accommodative financial conditions, thereby supporting the flow of credit to households and businesses. the september fomc meeting was the first since the committee approved in august our new statement on longer - run goals and monetary policy strategy and adopted a new policy framework. 3 the changes we made in our september fomc statement bring our policy guidance in line with this new framework. in our new framework, we acknowledge that policy decisions going forward will be based on the fomc ’ s estimates of “ shortfalls [ emphasis added ] of employment from its maximum level ” — not “ deviations. ” this language means that going forward, a low unemployment rate, in and of itself, will not be sufficient to trigger a tightening of monetary policy absent any evidence from other indicators that inflation is at risk of moving above mandate - consistent levels. with regard to our price - stability mandate, while the new statement maintains our definition that the longer - run goal for inflation is 2 percent, it elevates the importance — and the challenge — of keeping inflation expectations well anchored at 2 percent in a world in which an effective - lower - bound constraint is, in downturns, binding on the federal funds rate. to this end, the new statement conveys the committee ’ s judgment that, in order to anchor expectations at the 2 percent level consistent with price stability