mr mcdonough comments on capital markets, securities and government sponsored enterprises statement by the president of the federal reserve bank of new york, mr william j. mcdonough, before the committee on banking and financial services, u. s. house of representatives, washington, d. c., on 3 march 1999. good morning chairmen leach and baker and members of the subcommittee. when i appeared before the full committee in october, i spoke about the near - collapse of long - term capital management and the events leading up to the private - sector recapitalization of its fund, long - term capital portfolio. at that time, i promised you that we would take a hard look at the issues growing out of that experience, particularly as they affect our responsibilities as bank supervisors. i am pleased to appear before you today to report on the lessons we have learned and the actions we have taken to reduce the possibility that such an episode could repeat itself in the future. as i indicated last fall, three issues require particular attention by banks and their supervisors in the wake of ltcm. these are, first, the adequacy of banks ’ credit analysis processes ; second, the effectiveness of exposure measurement ; and third, the role of stress testing of counterparty exposure. in my remarks today i will detail the substantial progress that has been made, both domestically and internationally, to address each of these supervisory concerns. but before i get into the details, let me say that i believe the ltcm episode and the supervisory response to it is fundamentally about two things : leverage and good judgment. leverage is a fact of life in our financial world, and is a key part of the risk - taking necessary for the creation of wealth. but sometimes banks go too far in extending credit to their customers and counterparties. that ’ s where good judgment comes in. i know - - i ’ ve been there. i was a commercial banker for 22 years before becoming president of the new york fed, and i can tell you that the most important decisions a banker makes are how to lend and to whom. those decisions are not easy, and often involve many shades of gray. one of our aims as supervisors should be to see that banks are using the right tools to make those judgments. the importance of these issues extends beyond banks and their supervisors. sound credit policies and procedures are essential not only for the stability of individual banks, but also – and more importantly – for the health of the financial system and the economy

william c dudley : still more lessons from the crisis remarks by mr william c dudley, president and chief executive officer of the federal reserve bank of new york, at the columbia university world leaders ’ forum, new york, 7 december 2009. * * * it is a pleasure to have the opportunity to speak here this evening. i was a freshman here at columbia nearly 40 years ago. i ’ m certainly glad to be back, but i must admit that there is a downside : it does make me feel a bit old in the process. tonight, i want to talk about two broad sets of issues : first, the federal reserve ’ s role in responding to the crisis and the steps we must take to reduce, as much as possible, the risks of this type of costly and painful episode in the future and, second, the economic outlook for 2010 and some of the challenges that the federal open market committee ( fomc ) faces in the conduct of monetary policy. the actions undertaken by the federal reserve over the past two and a half years have been critical to stabilizing the financial system and preventing the extraordinary distress in markets from causing a deeper and more protracted economic downturn. much of the fed ’ s ability to respond as effectively as it did during this crisis, whether it was from a monetary policy, a “ lender - of - last resort ” or a supervisory perspective, came from its breadth and depth of knowledge and experience with financial institutions, financial markets and financial market infrastructure, both inside and outside of the united states. that said, there is also no question that the federal reserve and other regulators could have done more to prevent this crisis. that is why, even as the fed has engaged in extraordinary efforts to stabilize the financial system over the past couple of years, it has also been moving quickly to make the internal changes necessary to strengthen our effectiveness. in addition, the fed has been working with other regulators in and outside of the u. s. to craft and implement the broader changes in regulation and supervision that are necessary to make our financial system more robust and resilient going forward. turning to the outlook, the recession now appears to be over, but the economy is still weak and the unemployment rate is much too high. these circumstances underpin the fomc ’ s commitment to keeping short term rates exceptionally low for an extended period. however, at the same time, it deserves emphasizing that the federal reserve will be willing and able to exit from this period smoothly when