a remarkable, yet not widely - known, fact about this boom period is that while home values were rising very quickly, borrowing was growing almost exactly as fast. rather than saving the extra wealth that was being generated by the housing boom, households were diverting a large share of it to other purposes. indeed, the fraction of every additional dollar of households ’ housing wealth that was consumed seems to have been higher than that for financial wealth — such as investments in equities and bonds — suggesting that they viewed the increase in home prices as permanent. in order to be able to assess the evolution of household finances more precisely, we worked with equifax — a major credit bureau — to create a new database that tracks the credit files of a random sample of households over time. from this consumer credit panel data, we conclude that between 2004 and 2006, households were increasing their cash flow by over $ 200 billion a year by borrowing against their housing equity collateral. they supplemented that with another $ 185 billion through non - mortgage borrowing. so, at the height of the boom, annual consumption was being supplemented by around $ 400 billion in cash flow from debt, much of it collateralized by housing. as we now know, homeowners were mistaken in viewing the home price increases during the boom as permanent. things turned quickly as housing supply increased, home prices softened and mortgage underwriting standards tightened sharply as credit losses on residential mortgage lending climbed. the rise and fall of mortgage securitization activity marked by tranching mortgage cash flows into collateralized debt obligations ( cdos ) exacerbated the downturn. home values began to fall in mid - 2006. by 2008, we saw a massive reversal in the way people used their housing equity to finance consumption. people went from borrowing hundreds of billions of dollars per year and increasing their mortgage debt, to paying back hundreds of billions dollars and reducing their mortgage debt. households deleveraged even apart from the decline in household debt associated with the charge - offs from foreclosures. instead of $ 400 billion in net cash flow from increased borrowing, this net cash flow sharply reversed to negative $ 150 billion by 2010, with increased residential mortgage debt pay - down being the main source. this rapid swing — a reduction of more than $ 500 billion on an annual basis — in the resources available for household consumption was associated with a sharp and prolonged slump in personal consumption expenditures during the great recession. typically, consumption growth slows but remains positive during a recession

prompt and decisive action can be taken to restore capital. the committee currently is in the final stages of preparing a paper on how the supervisory review of capital can be implemented effectively. the third pillar of the new capital adequacy framework, market discipline, will serve to reinforce capital regulation and other supervisory efforts to promote safety and soundness in banks and financial systems. the committee, in january of this year, issued a paper on bank disclosures, covering banks ’ capital structures, risk exposures and capital adequacy. currently, our transparency group is considering whether it is possible to establish a set of core disclosures that would bolster market discipline. this will involve drawing upon our existing disclosure recommendations, and reviewing the extent to which disclosure in new areas - the internal ratings - based method, external ratings or internal assessment of other risks - might be appropriate. i hope that this overview has given you a sense of the key points the committee has learned from the consultative process, and where we are headed. in the near - term, we are completing our work and expect over the next few months to make progress in a number of areas, including greater risk differentiation in the standardized approach and the development of supervisory standards for internal ratings. as we continue to fine - tune the new capital adequacy framework, we also are striving to avoid getting bogged down in secondary issues that could slow down the overall process. as i have often remarked, the perfect cannot be the enemy of the good. it is imperative that we stay on track in our goal to release a new capital adequacy framework by early next year, with a comment period and industry implementation to follow shortly thereafter. corporate governance my remarks thus far have focused on the need for a more risk - reflective capital framework. clearly, a strong capital position is crucial to the sound operation of any banking organization. it allows banks ’ board of directors and senior management to focus on strategic objectives and growth opportunities, supports the business activities of the organization, and provides the financial strength necessary to sustain the occasional losses that are inevitable in a business of taking calculated risks. in this latter sense, capital represents the last line of defense against potential loss - creating problems. but, i want to briefly address the first line of defense - effective bank management, which increasingly is an important element of today ’ s supervisory framework as banks ’ activities and their associated risks become ever more complex. there are several aspects to effective bank management. the importance of good