carefully, and lenders in turn have tightened up their underwriting. risk premiums on indexes of credit default swaps for subprime mortgage - backed securities ( mbs ) began to widen sharply late last year, especially for those on pools of mortgages originated in 2006. credit spreads on new subprime mbs have also risen. respondents to the senior loan officer opinion survey in april indicated a substantial net tightening of standards for subprime mortgages. tighter lending standards in the subprime mortgage market – together with the possibility that the wellpublicized problems in this market may dissuade potentially eligible borrowers from applying – will serve to restrain housing demand, although the magnitude of these effects is difficult to quantify. subprime and near - prime mortgage originations rose sharply in 2004 and 2005 and likely accounted for a large share of the increase in the number of home sales over that period. however, originations of nonprime mortgages to purchase homes appear to have peaked in late 2005 and declined substantially since then, and by more ( even in absolute terms ) than prime mortgage originations. thus, some part of the effect on housing demand of the retrenchment in the subprime market has likely already been felt. moreover, indicators such as the gross issuance of new subprime and nearprime mbs suggest that the supply of nonprime mortgage credit, though reduced, has by no means evaporated. 2 that said, the tightening of terms and standards now in train may well lead to some further contraction in nonprime originations in the period ahead. we are also likely to see further increases in delinquencies and foreclosures this year and next as many subprime adjustable - rate loans face interest - rate resets. we will follow developments in the subprime market closely. however, fundamental factors – including solid growth in incomes and relatively low mortgage rates – should ultimately support the demand for housing, and at this point, the troubles in the subprime sector seem unlikely to seriously spill over to the broader economy or the financial system. federal reserve initiatives and possible regulatory actions whatever their effects on the broader economy, the problems in the subprime sector are causing real distress for many homeowners. to help mitigate the situation, the federal reserve and other federal supervisory agencies are encouraging the banks and thrift institutions that we supervise to work with borrowers who may be having trouble

, and the swiss national bank. these agreements enable foreign central banks to provide dollars to financial institutions in their jurisdictions, which helps improve the functioning of dollar funding markets globally and relieve pressures on u. s. funding markets. it bears noting that these arrangements carry no risk to the u. s. taxpayer, as our loans are to the foreign central banks themselves, who take responsibility for the extension of dollar credit within their jurisdictions. the expansion of federal reserve lending is helping financial firms cope with reduced access to their usual sources of funding and thus is supporting their lending to nonfinancial firms and households. nonetheless, the intensification of the financial crisis over the past month or so made clear that a more powerful, comprehensive approach involving the fiscal authorities was needed to address these problems more effectively. on that basis, the administration, with the support of the federal reserve, asked the congress for a new program aimed at stabilizing our financial markets. the resulting legislation, the emergency economic stabilization act, provides important new tools for addressing the distress in financial markets and thus mitigating the risks to the economy. the act allows treasury to buy troubled assets, to provide guarantees, and to inject capital to strengthen the balance sheets of financial institutions. the act also raises the limit on deposit insurance from $ 100, 000 to $ 250, 000 per account, effectively immediately. the troubled asset relief program ( tarp ) authorized by the legislation will allow the treasury, under the supervision of an oversight board that i will head, to undertake two highly complementary activities. first, the treasury will use the tarp funds to help recapitalize our banking system by purchasing non - voting equity in financial institutions. details of this program were announced yesterday. initially, the treasury will dedicate $ 250 billion toward purchases of preferred shares in banks and thrifts of all sizes. the program is voluntary and designed both to encourage participation by healthy institutions and to make it attractive for private capital to come in along with public capital. we look to strong institutions to participate in this capital program, because today even strong institutions are reluctant to expand their balance sheets to extend credit ; with fresh capital, that constraint will be eased. the terms offered under the tarp include the acquisition by the treasury of warrants to ensure that taxpayers receive a share of the upside as the financial system recovers. moreover, as required by the legislation, institutions that receive capital will have to meet certain standards regarding executive compensation practices. second, the treasury will