the financial system. in response to this need, the dodd frank act created the there appear to be two meanings of the word “ macroprudential. ” at first, it referred to a focus on systemic interactions within the financial system. it is in that sense that we are talking at this point. the second meaning is almost the opposite : it relates to regulatory but not monetary policy measures focused on some aspect of the financial system whose behavior is giving cause for concern. the large firms whose supervision is coordinated by the large institution supervision coordinating committee ( liscc ) are american international group, inc. ; bank of america corporation ; the bank of new york mellon corporation ; barclays plc ; citigroup inc. ; credit suisse group ag ; deutsche bank ag ; general electric capital corporation ; the goldman sachs group, inc. ; jp morgan chase & co. ; metlife, inc. ; morgan stanley ; prudential financial, inc. ; state street corporation ; ubs ag ; and wells fargo & company. for more information, see the liscc webpage on the board ’ s website. bis central bankers ’ speeches financial stability oversight council ( fsoc ) to help identify emerging risks and vulnerabilities to financial stability. the council ’ s annual report on financial stability highlights risks and vulnerabilities for the entire financial system and reflects the council ’ s own diverse nature : only 3 of the 10 voting members of the council are banking sector supervisors, with the remainder supervising or having regulatory authority related to credit unions, brokerdealers, asset managers, and derivative market participants. among its decisions, the fsoc has designated four u. s. nonbank financial institutions as systemically important financial institutions, which makes them subject to consolidated supervision by the federal reserve board. 7 in addition, the dodd frank act mandated the establishment of the office of financial research in order to help promote financial stability through the measurement and analysis of risks, the conduct of essential research, and the collection and standardization of financial data. a second nonbank reform has been the securities and exchange commission ’ s ( sec ) adoption of new rules for money market mutual funds. specifically, the sec will require prime money market funds sold to institutional investors to publish a floating net asset value and to restrict withdrawals through a system of gates and fees. these rules, while as yet untested, are designed to reduce the likelihood of runs on prime money market funds. the third nonbank reform i

would be bolstered further by sturdier household, business and financial firm balance sheets. it is not just the trend or level of asset prices that should inform policymakers. correlations of asset prices across markets also provide important insights. in times of panic, historic correlations break down and commonality predominates. those firms and individuals with purportedly " well - diversified portfolios " going into the panic bore painful witness to this truth. during extreme conditions, sharp swings in investor sentiment often dominate changes in relative valuations and, for a time, limit the degree to which financial markets effectively allocate credit. this breakdown in historic correlations is not unique to the onset of panics. it may predominate when panic conditions are in retreat. for instance, in the past couple of months, u. s. stock market indexes and corporate bond prices both moved meaningfully higher, while treasury yields and the foreign exchange value of the dollar fell. these movements are difficult to reconcile with historical experience or by ascribing them to changes in the modal growth path for the economy. rather, this odd constellation of movements in asset prices may indicate changes in investor preferences and in the distributions of outlooks for inflation and growth. it would be more reassuring to growth and inflation prospects in the coming months if asset prices were to signal a clearer, more reliable message. second, how might the policy response evolve? many of the programs created during the panic were designed to atrophy – due to their changing relative attractiveness in price and other terms – as market conditions improved. this natural unwinding has proven largely successful. as a result, the federal reserve's balance sheet composition has changed in recent months, even while the overall balance sheet size has remained relatively constant. see kevin warsh ( 2008 ), " the promise and peril of the new financial architecture, " speech delivered at the money marketeers of new york university, new york, november 6, 2008. several of the fed's non - traditional programs to provide monetary stimulus were established under section 13 ( 3 ) of the federal reserve act, the fed's governing statute. the congress authorized the federal reserve to lend to non - depository institutions, as the programs do, only under " unusual and exigent circumstances. " the judgment that the 13 ( 3 ) standard is no longer satisfied would cause an unwinding of nontraditional policy tools by the fed, and presage a