much smaller than usual. indeed, many of the structures seemed to be created to satisfy investors'strong demand for securities that carried investment - grade ratings but that might provide slightly higher yields than other investment - grade securities, such as corporate bonds. in many cases, however, investors seem to have been attracted to these structured securities without a thorough understanding of the underlying risk profiles. although mbs and cdos had been around for many years, the more recent structures were significantly different and more complex than their earlier counterparts. investors'earlier experience with cdos, for example, was mainly limited to cases in which primary securities, such as corporate bonds, business loans, or other simple securities, formed the underlying collateral. in contrast, the more recent cdos frequently were themselves backed by structured securities, resulting in so - called two - layer securitizations in which structured products are used to fund other structured products. these two - layer securitizations are inherently more complex and are more exposed to tail risk than their earlier one - layer counterparts. indeed, in its recent report on credit - risk transfer, the joint forum – an international collaboration of financial supervisors – noted a cliff effect that is associated with the distribution of returns that can be realized on the more senior tranches of two - layer securitizations. 1 simply put, the cliff effect refers to the fact that investors of higher - rated tranches of complex securities can expect to receive a small positive return in most circumstances, but they are vulnerable to extremely large losses in those rare events of widespread financial stress. despite the greater complexity, it seems that many investors assumed that the evaluations of credit - rating agencies would work well and be sufficient for the new structured securities. investors ended up relying too heavily on those assessments rather than requiring ample information about the underlying assets and demanding extra transparency in order to estimate projected risk - return trade - offs. role of information and transparency in corporate bond market to illustrate how important information and transparency will be in the recovery and repair process of the securitization markets going forward, it might be helpful to review a case in which, on the whole, market functioning has held up relatively well. i'm thinking specifically about the market for corporate bonds issued by investment - grade nonfinancial firms. to be sure, over the past year, growing concerns about individual firms'earnings and about the overall macroeconomic outlook have contributed to significantly wider risk spreads on corporate bonds. nonetheless, investment - grade

report to the congress. in addition, the federal reserve system has expanded our economic research into issues of consequence to community banks and has worked to encourage similar research efforts at academic institutions. several years ago, a group of economists from across the system formed an informal working group to share ongoing research related to community banking. encouraging results from this internal forum led, in 2013, to an inaugural research and policy conference titled “ community banking in the 21st century, ” sponsored jointly by the federal reserve system and the conference of state bank supervisors. the conference provided a unique opportunity for researchers, community bankers, and bank supervisors to come together to hear some of the latest research on topics related to community banking and discuss the practical implications of this research. the 2013 conference was so successful that we decided to make it an annual event. the third annual conference will take place this coming fall at the federal reserve bank of st. louis, and chair yellen is scheduled to provide opening remarks. i had the pleasure of participating in the first two conferences and found the presentations and conversations to be extremely enlightening. many of the researchers who presented at these conferences said that the feedback they received from bankers and bank supervisors was valuable in helping them shape their future research endeavors. the conference organizing committee has launched a new website with the url “ www. communitybanking. org, ” which they hope will become a focal point for all who are interested in community banking research. the website provides links to the papers and presentations from the previous conferences, news about future conference plans, and other information that might be of interest to community banking researchers. although research is an important avenue for improving our understanding of the community bank business model and the effects of changing market and regulatory conditions on the viability of that model, understanding is further enhanced through direct interactions between regulators and community bankers. for this reason, the federal reserve system has taken a number of steps to expand its outreach to community banks. as you probably know, in 2010 the board created the community depository institutions advisory council, which includes representatives from community banks, credit unions, and savings associations from each federal reserve district. 4 the board of governors meets twice each year to hear the council ’ s valuable insights into the most pressing concerns of community bankers from across the country. there is also a council for each of the 12 reserve banks, which meets regularly with its reserve bank leadership. more on the community depository institutions advisory council is available on the board ’ s website at www. federalres