. in particular, these firms will need to have robust contingency plans for situations in which their access to short - term secured funding also becomes impaired. commercial banks should meet the same requirement. implementation of such plans is likely to entail substitution of longer - term secured or unsecured financing for overnight secured financing. because those longer - term funding sources will tend to be more costly, both investment banks and commercial banks are likely to conclude that it is more profitable to operate with less leverage than heretofore. no doubt their internalization of the costs of potential liquidity shocks will be costly to their shareholders, and a portion of the costs likely will be passed on to other borrowers and lenders. but a financial system with less leverage at its core will be a more stable and resilient system, and recent experience has driven home the very real costs of financial instability. primary dealers are banks and securities broker - dealers that trade in u. s. government securities with the federal reserve bank of new york. on behalf of the federal reserve system, the new york fed's open market desk engages in the trades to implement monetary policy.

the board to consider requiring, by regulation, a number of measures to improve the check system. many of these measures focused on improving the process by which unpaid checks are returned to the bank of first deposit. other suggested measures related to check truncation. the board has used its authority under the efaa to make several important improvements to the check system. the board's ability to adopt some rules to improve the check system is hampered, however, by the efaa's limitation on the board's ability to impose or allocate the risks of loss or liability related to payment transactions. the efaa authorizes the board to impose on or allocate among only depository institutions the risks of loss or liability, and only up to the amount of the check giving rise to the loss or liability, except where there is bad faith. these limitations have prevented the board from adopting by regulation some important innovations that could substantially improve the efficiency of the check system. for example, the board cannot adopt by regulation the changes called for in the proposed check clearing for the 21st century act, because the bill affects the rights of the end users of checks ( including businesses and consumers ), in particular their right to receive their original checks, and allocates liability for not only the amount of the check but also interest, litigation costs, and in some cases consequential damages. conclusion in conclusion, although an increasing number of payments are being made electronically, it is clear that checks will continue to play an important role in the nation's payments system for the foreseeable future. we believe that, over the long run, the concepts embodied in the proposed check clearing for the 21st century act will spur the use of new technologies to improve the efficiency of the nation's check collection system and provide better services to bank customers. because the act should result in substantial cost savings, it would also be desirable to begin obtaining these savings in the near future, ideally before the bill's proposed 2006 effective date. there are some technical matters in the current version of the bill that could be improved or clarified, and we look forward to working with the committee as it further considers this legislation. thank you for your time and i would be happy to answer your questions. 12 u. s. c. § 4008 ( c ) 12 u. s. c. § 4007 ( b ) 12 u. s. c. § 4008 ( b ) the board has adopted rules