segment of the market, as well as the futures markets. 3 the intense and widespread selling pressures appear to have overwhelmed dealers ’ capacity or willingness to absorb and intermediate treasury securities. 4 in the end, the federal reserve took a number of steps to support smooth market functioning, which i will describe in a moment. fortunately, even with these strains in financial markets, banks were able to remain a source of strength to the financial system and the economy. banks entered this crisis with much stronger balance sheets than the last one — with more and higher - quality capital, more liquid assets, and less reliance on fragile funding. this is a testament to reforms implemented by the fed and other agencies in the aftermath of the gfc. not surprisingly, however, the magnitude of the economic and financial disruptions from the covid event posed some major challenges to banks. first, in march, many businesses — unable to satisfy their large cash demand through cp or 2 / 5 bis central bankers'speeches corporate bond issuance, for the reasons i described earlier — drew down on their existing credit lines with banks in order to raise cash. as a result, commercial and industrial ( c & i ) loans in the banking system increased by nearly $ 480 billion in march — by far the largest monthly increase ever. banks were able to fund these loans without notable problems through inflows of core deposits, other borrowing, and, to a lesser extent, by using their buffers of liquid assets. the inflow of deposits resulted from increased demand for safe haven assets, reflecting confidence in u. s. banks. while banks were a source of strain during the gfc, they were a source of strength during this crisis. after march, as the economy started to recover, many firms repaid these drawdowns and c & i lending by banks declined. if the drawdown of credit lines tested the resilience of banks to liquidity shocks, financial distress at borrowers has been testing the resilience of banks to losses. the covid event has made it harder for many borrowers — businesses as well as households — to repay their debt. encouraged by supervisors, banks have been working actively with their customers and have agreed to grant forbearance to millions of borrowers. at the same time, banks have recognized that the credit quality of many loans has deteriorated considerably, and they have made sizable provisions to prepare for expected loan losses. while banks have continued to lend, we have seen a notable tightening of bank lending

integrated response by irb banks. focusing irb efforts in a compliance unit that seeks to meet the letter but not the spirit of the irb standards will not be welcome. the details of what we will expect are, of course, still being developed. based on our discussions with banks thus far, areas of special attention may include the breadth and depth of internal audit and loan review and the consistency and timeliness of internal ratings. the overall supervisory review process is likely to be familiar : verification of internal processes and procedures, coupled with some degree of transaction testing. the overarching goal will be to assess the effectiveness of a bank ’ s processes and systems in achieving sound risk management and adherence to irb standards rather than to dictate the particular form that internal checks and balances must take. supervisors will also carefully review the manner in which loss characteristics are estimated and the estimates themselves – such as the probabilities of default, the losses given default, and the exposures at default – that are provided by irb banks. this is an area where supervisors have not tread very often and with many open issues. the issues include the suitability of internal and external data sources, the appropriate historical period to use in producing estimates, and the manner in which historical data and loss estimates should be linked to the bank ’ s current exposures. these and other issues will be challenging and will rightly occupy much of our attention over the coming months and years. in this context, the industry and supervisors must work together to develop and use reasonable standards for irb quantification. neither we nor banks can afford a “ race to the bottom ” in this critical area. the expertise of the rma will be particularly sought and appreciated. supervisors obviously have a lot of work to do. we are at the very beginning of efforts to train our staff to understand all of the issues raised by basel ii and to make sound judgments about banks ’ adherence to the standards. i hope you will be patient with our examiners as they come up to speed, just as we intend to be patient with you. and you should not interpret my earlier remarks as a signal that we intend to be very inflexible. we recognize that many systems, methods, and organizational forms can satisfy the spirit of the irb standard, and that what is appropriate for one bank may not be appropriate for another. we expect and welcome variety, in part because that is necessary to support further innovation. and innovation is absolutely necessary.