of treasury, agency debt, and agency mbs likely both reduced the yields on those securities and also pushed investors into holding other assets with similar characteristics, such as credit risk and duration. for example, some investors who sold mbs to the fed may have replaced them in their portfolios with longer - term, high - quality corporate bonds, depressing the yields on those assets as well. the logic of the portfolio balance channel implies that the degree of accommodation delivered by the federal reserve ’ s securities purchase program is determined primarily by the quantity and mix of securities the central bank holds or is anticipated to hold at a point in time ( the “ stock view ” ), rather than by the current pace of new purchases ( the “ flow view ” ). in support of the stock view, the cessation of the federal reserve ’ s purchases of agency securities at the end of the first quarter of this year seems to have had only negligible effects on longer - term rates and spreads. the federal reserve did not hold the size of its securities portfolio precisely constant after it ended its agency purchase program earlier this year. instead, consistent with the committee ’ s goal of ultimately returning the portfolio to one consisting primarily of treasury securities, we adopted a policy of re - investing maturing treasuries in similar securities while allowing agency securities to run off as payments of principal were received. to date, we have realized about $ 140 billion of repayments of principal on our holdings of agency debt and mbs, most of it prior to the end of the purchase program. continued repayments at this pace, together with the policy of not re - investing the proceeds, were expected to lead to a slight reduction in policy accommodation over time. however, more recently, as the pace of economic growth has slowed somewhat, longer - term interest rates have fallen and mortgage refinancing activity has picked up. increased refinancing has in turn led the fed ’ s holding of agency mbs to run off more quickly than previously anticipated. although mortgage prepayment rates are difficult to predict, under the assumption that mortgage rates remain near current levels, we estimated that an additional $ 400 billion or so of mbs and agency debt currently in the fed ’ s portfolio could be repaid by the end of 2011. at their most recent meeting, fomc participants observed that allowing the federal reserve ’ s balance sheet to shrink in this way at a time when the outlook had weakened somewhat was inconsistent with the committee

susan schmidt bies : qualitative aspects of effective risk management remarks by ms susan schmidt bies, member of the board of governors of the us federal reserve system, at the global association of risk professionals fifth annual convention, new york, 25 february 2004. * * * good morning. i am delighted to be here for garp ’ s 5th annual risk management convention and to support, to the extent that i can, the work of your organization. it ’ s gratifying to see the progress garp has made in its short life toward promoting the visibility and quality of the risk management profession. i congratulate you on the progress you have made and wish you further success in the years ahead. i have spent much of my own career in the field of risk management, and certainly the federal reserve has a keen interest in the matter. for those of us who have spent more than a few years in the business, it is easy to see the recent progress in the quantitative or scientific aspects of risk management as a result of data base and other technological advances. these increased capabilities have helped push financial theory and have opened doors and minds to new ways of measuring and managing risk. these advances have also made possible the development of important new markets and products that have become widespread and essential to the risk management practices of both financial and nonfinancial firms. they have also made the practice of risk management far more sophisticated and complex. the application of mathematics and statistics, the collection and compilation of large amounts of data, and the analysis and characterization of the risks embedded in business activities today are much different - and in many ways more challenging - than they were not long ago. while the enhanced quantitative dimensions of risk measurement may be quite visible ( at least to practitioners of the art ), their implications for the qualitative aspects of risk management may be less apparent. in practice, though, these qualitative aspects are no less important to the successful operation of a business - as events continue to demonstrate. as risk measurement practices advance, the full range of risk management practices needs to keep pace. in my remarks today, i would like to highlight some of the advances in risk management that we have seen in recent years, particularly those related to the management and transfer of credit risk. these gains and the development of new and important markets have come about because of better riskmeasurement techniques and have the potential, i believe, to substantially improve the efficiency of u. s. and world financial markets