consumer spending is being significantly attenuated. moreover, high and rising equity prices had facilitated a good deal of financing for newer companies, both in the equity and bond markets. widened spreads in the high - yield markets reflect, in part, a reduced potential for new equity issuance to support debt servicing. higher costs of capital for these companies likely is exerting some restraint on overall business capital spending. nonetheless, in the face of the energy price spike and the erosion of optimism in financial markets, consumer confidence, or sentiment, appears to be holding up reasonably well to date, though there have been some mixed signals of late. and although new orders for high - tech equipment have slowed from their torrid pace of earlier this year, order backlogs for such equipment continued to rise through october, and capital deepening and structural productivity growth continued apace. still, in an economy that already has lost some momentum, one must remain alert to the possibility that greater caution and weakening asset values in financial markets could signal or precipitate an excessive softening in household and business spending. as might readily be expected, these changing economic dynamics, of necessity, are being reflected in our banking markets. technological innovations played a key role in rendering decades - old banking laws and regulations obsolete. the relaxation of these regulations has, in turn, further reduced barriers to competition and accelerated the modernization of our financial system. that evolution, however, must continue to occur in a manner that preserves the fundamental soundness of the financial system and, in particular, the nation ’ s banks. history teaches us that a sound banking system, willing and able to take deposits and extend credit, is a prerequisite for the long - term health of the national economy. securities markets alone will never be able to substitute for the extensive and detailed knowledge that bankers - especially community bankers - bring to the intermediation process. in addition, changes in regulation and supervision induced by technological innovations in information processing are just a small part of the sea change in banking. far more important is that these technologies have made it possible for banks and other financial firms to adopt business models and to offer customers a range of products and services that literally would have been impossible only a few years ago. what has transpired in the banking industry has been just a microcosm of the sweeping changes in the economy at large in recent years - changes that also present both risks and opportunities to banks. since the mid - 1990s, the banking industry has enjoyed an

vulnerabilities ( under the leadership of fsb vice chair klaas knot of de nederlandsche bank, here today ) is an important forum and catalyst for this work. in the months ahead, the committee will develop a new framework for the 2 / 4 bis central bankers'speeches identification and assessment of financial vulnerabilities. their efforts will rely on transparent engagement with a wide range of stakeholders — including banks and nonbank financial institutions, the academic community, financial regulators, national authorities, and standardsetting bodies. this kind of broad outreach is essential. the causes of financial crises rarely announce themselves ahead of time, and only a wide range of views can give us the perspective and understanding to address them in advance. the right model for this work is not a small team of detectives — it is a search party. the fsb ’ s efforts on nonbank financial intermediation, which i discussed last week, reflect a similar approach. nonbank financing has grown since the financial crisis, and it has been a source of systemic risk, often involving high leverage, maturity and liquidity mismatches, opaque structures, and concentrated holdings of risky assets. nonbank financing can also lead to lower lending standards, bidding up the price of risky assets and sending an encouraging signal to credit underwriters. these channels played a role in the recent global financial crisis, and more recently, new forms of interconnectedness between nonbank financial firms and the banking system have emerged. in some scenarios, both domestically and internationally, such ties could amplify risks. these developments raise important issues. is the growth of nonbank financing altering existing market structures? are there new vulnerabilities in the financial system? how will nonbank financing develop, and how should it do so? the fsb is taking a variety of complementary approaches to answering these questions. first, we produce an annual report that outlines the developments in nonbank financing, detailing global trends and potential risks and providing reliable information to foster public discussion. second, the fsb develops policies to promote the resilience of these firms ( without impeding the growth of sustainable nonbank financing models ), and we work closely with other multinational organizations to monitor implementation. finally, and going forward, we must begin analyzing the effectiveness of the policies on nonbank financing that have been implemented. analysis the same spirit of self - reflection should guide the fsb ’ s efforts in other policy areas. stakeholders trust the fsb to undertake thoughtful