still gives me nightmares. 1 after the dust settled, we had to grapple with the wider implications of the scandal for the market itself and particularly the role of regulatory oversight. we certainly could have used a tmpg to help us with this work, but none existed at that time. our recommendations were summarized in a joint report to the congress issued by the treasury department, the securities and exchange commission ( sec ), and the federal reserve board. among the issues we considered were how to encourage a level playing field for all market participants, and when and where regulators should respond to the periodic technical difficulties the market sometimes experienced. as we drew up the report, we were deeply aware of the importance that treasury markets held for the american economy. the sale of treasury bonds, notes, and bills finances the u. s. government, and those securities are in turn a primary vehicle for savings for a wide range of u. s. households. treasury securities are also an important source of collateral within the financial system. this last role has become all the more critical in recent years as regulations have required banks to hold larger amounts of high - quality liquid assets so that they can safely meet their potential liquidity needs. we also knew that, despite the misconduct by salomon brothers, treasury markets generally worked quite well. these markets are and have long been among the deepest and most liquid markets in the world. it was important to make the auction system more robust to potential manipulation, and we made several recommendations to do so and to open up the process to greater competition. however, in other areas that already worked well, we chose, for example, to 1 / 3 bis central bankers'speeches open up issuance of securities that were in short supply ( or “ squeezed ” ) when needed rather than to risk negatively affecting the functioning of treasury markets by instituting more invasive regulation. there is certainly a role for regulation, but regulation should always take into account the impact that it has on markets — a balance that must be constantly weighed. more regulation is not the best answer to every problem. there is also a role for a body such as the tmpg to address market problems. the tmpg ’ s approach to “ fails ” in the treasury and mortgage - backed securities markets provides a good example. fails — that is, the failure to deliver collateral in either a cash or repurchase agreement transaction — impose a cost on the party expecting delivery. if the practice were to become too frequent, then

the interconnection between meaningful consumer protections and broad access to credit will ensure a more lasting and sustainable economic recovery. conclusion with that, i would like to come full circle and end with the importance of dialogue between the federal reserve banks and the regions they serve. this conference is an excellent example of the ways in which policy is shaped by your involvement. every day across all 12 federal reserve districts we leverage forums such as this, as well as partnerships with financial institutions and community groups, to better understand how financial products are shaping the communities that make up our vast economy. i want to commend you for taking the time to engage in thoughtful consideration of policies that will help alleviate the impact of the current housing and economic crisis on our neighborhoods. i also look forward to a continued discussion of the role that strong consumer protection must play in our economic future.