that are used on an ongoing basis to promote the safety and soundness of individual financial firms and build a resilient financial system. there are also tools that provide liquidity to banks and other financial intermediaries in emergencies, such as the discount window or lending facilities created to extend credit more broadly. 1 / 3 bis - central bankers'speeches so far, these financial stability tools have had a good track record of effectively promoting financial stability in the united states. numerous lending facilities set up in the spring of 2020 helped limit strains that the pandemic put on the financial system. more recently, when the failure of silicon valley bank led to the loss of deposits at other banks, the discount window and a new facility to help ensure banks have the ability to meet the needs of all their depositors have been effective at containing stresses in the banking system. importantly, these actions to address financial stability enabled us to continue to pursue our monetary policy objectives during these times. compared with financial stability tools that address liquidity or other strains in targeted individual institutions or segments of the financial system, monetary policy affects everyone and every part of the economy and would be a blunt and less effective tool to address financial stability problems. that said, in carrying out monetary policy, we do consider how credit conditions and other factors related to financial stability are affecting the economy. as i argued in a speech last month, the recent strains in the banking sector may lead to a tightening of price and nonprice conditions for lending. 2 if that is the case, then it might reduce the need for at least some further tightening of monetary policy to lower inflation. the fed could tighten policy too much if it ignored such a development. to make this argument more concrete, consider the onset of the pandemic in march 2020. the federal open market committee held two unscheduled meetings where, recognizing that the coronavirus would weigh on economic activity and pose risks to the economic outlook, it lowered the policy target range down to zero. at the same time, the unprecedented uncertainty about how the macroeconomy would be affected by the pandemic destabilized financial markets, which led the federal reserve to put in place several lending facilities to support the system. we took each of these actions independently ; we did not lower the policy rate for the sole purpose of achieving financial stability. although both types of tools were used simultaneously, they were used to solve different problems. financial stresses in the banking sector are a factor that my colleagues

banks'combined exposures exceeded $ 50 billion. 1 money market mutual funds and others that held aig's roughly $ 20 billion of commercial paper would also have taken losses. in addition, aig's insurance subsidiaries had substantial derivatives exposures to aig - fp that could have weakened them in the event of the parent company's failure. moreover, as the lehman case clearly demonstrates, focusing on the direct effects of a default on aig's counterparties understates the risks to the financial system as a whole. once begun, a financial crisis can spread unpredictably. for example, lehman's default on its commercial paper caused a prominent money market mutual fund to " break the buck " and in addition, many of these same banks had borrowed securities from aig's securities lending program for which they had given aig cash as collateral. upon an aig bankruptcy, the banks would have taken possession of the securities instead of receiving back their cash, exposing them to possible losses on those securities. suspend withdrawals, which in turn ignited a general run on prime money market mutual funds, with resulting severe stresses in the commercial paper market. as i mentioned, aig had about $ 20 billion in commercial paper outstanding, so its failure would have exacerbated the problems of the money market mutual funds. another worrisome possibility was that uncertainties about the safety of insurance products could have led to a run on the broader insurance industry by policyholders and creditors. moreover, it was well known in the market that many major financial institutions had large exposures to aig. its failure would likely have led financial market participants to pull back even more from commercial and investment banks, and those institutions perceived as weaker would have faced escalating pressure. recall that these events took place before the passage of the emergency economic stabilization act, which provided funds that the treasury used to help stem a global banking panic in october. consequently, it is unlikely that the failure of additional major firms could have been prevented in the wake of the failure of aig. at best, the consequences of aig's failure would have been a significant intensification of an already severe financial crisis and a further worsening of global economic conditions. conceivably, its failure could have resulted in a 1930s - style global financial and economic meltdown, with catastrophic implications for production, income, and jobs. the decision by the federal reserve on september 16, 2008, with the full