for a resilient banking system. starting with current banking conditions, the banking system remains sound and resilient, and it is in much better shape than it was last spring. however, there are a few pockets of risk that we continue to watch, including the pandemic ’ s persistent impact on office commercial real estate in certain central business districts. 2 just a couple of weeks ago, disappointing earnings and higher loss provisions at one bank precipitated significant declines in stock prices. a single bank missing its revenue expectations and increasing its provisioning does not change the fact that the overall banking system is strong, and we see no signs of liquidity problems across the system. nevertheless, we continue to monitor conditions carefully across the sector, just as we always do. a few lessons from march 2023 crucial to banks being resilient is effective liquidity risk management. that was clear in march 2023 and remains so now. we learned that runs can materialize with unprecedented speed and severity, spreading contagion. silicon valley bank ( svb ) lost $ 40 billion in deposits in a single day, and the firm ’ s management expected to lose $ 100 billion more the following day. in total, that represented about 85 percent of the firm ’ s these risks have been discussed in recent editions of the financial stability report, which are available on the board ’ s website at https : / / www. federalreserve. gov / publications / financial - stability - report. htm. - 6deposits. 3 the runs on svb and, shortly thereafter, on signature bank and first republic, each of which lost around 20 percent of deposits within hours, were much faster than we had seen in previous episodes. 4 the runs on all three were also especially severe, driven in part by imprudent funding reliance on uninsured deposits placed by concentrated and often highly networked customer bases. these deposits proved flightier than previously assumed. for example, svb ’ s depositors were heavily concentrated in venture capital and technologysector firms, signature bank had uninsured depositors from crypto - related firms, and first republic had high concentrations of high - net - worth uninsured depositors. many of these uninsured depositors rapidly withdrew their balances, resulting in deposit flows that were much higher than assumed under the standardized liquidity requirements, such as the liquidity coverage ratio. at the same time that these institutions faced these outflows

notional and market values of all overthe - counter foreign exchange and interest rate derivatives contracts - rough measures of market activity - have nearly doubled in just the past two years. the credit derivatives market is still in its infancy, but data gathered by the international swap dealers association suggest that this market has registered even more spectacular growth in the past two years. all of these new instruments allow more - effective management and pricing of risks, so the growth of these markets has surely been positive, on net, for market participants. but the increasing complexity of these instruments also raises a host of policy questions regarding, to name just a few items, accounting treatment, disclosure policy, netting provisions, capital charges, and the enforceability of netting and collateral arrangements in bankruptcy proceedings. a final trend worth singling out is the steady increase in global financial integration. borrowers today raise funds in multiple financial centers and in multiple currencies ; commercial lenders and retail investors regularly take on international exposures ; and arbitrageurs establish leveraged risk positions across currencies and markets. data collected by the bis, for example, suggest that the volume of debt outstanding that was issued in international credit markets has more than doubled worldwide in the past four years. likewise, the international positions of banks worldwide have increased almost as markedly over the same interval. for the most part, these developments suggest that global financial markets are becoming more efficient and more integrated. but increased global financial integration carries with it some new risks. as we learned all too well following the russian debt default in august 1998, financial difficulties in one corner of the world can now spread in unpredictable and potentially disruptive ways to every major financial center. in the remainder of my remarks this morning, i will draw out some of the implications of these long - run trends for the core responsibilities of many central banks, which include the conduct of monetary policy, bank supervision and regulation, and crisis management and liquidity assistance. monetary policy the steadily increasing importance of markets and nonbank instruments as the primary vehicles for borrowing and lending has several important implications for monetary policy transmission and strategy. it seems plausible, for example, that a financial system dominated by market - based finance has likely reinforced the status of the market for financial assets as the most important channel of monetary policy transmission. this simple observation has some rather profound implications for the conduct of monetary policy. typically, central banks directly control a short - term interest rate, but the forward - looking nature of financial markets implies that long - term