with regard to the condition of existing commercial loan portfolios, delinquencies have been rising recently as has the volume of criticized assets. this has been most evident in the leveraged loan market, where lending standards appeared to weaken noticeably in recent years, and which tends to be more susceptible to soft economic conditions. supervisors are monitoring banks'commercial lending activities, particularly leveraged loan portfolios, to detect weaknesses in asset quality that may result from slowing economic conditions and to ensure appropriate risk management practices. in part, the agencies rely on their shared national credit ( snc ) program to assess the credit quality of banks'commercial loan portfolios. the 2008 review is now underway and will provide additional insight into the condition of large syndicated credits that are shared by three or more banks, including an evaluation of underwriting practices and trends in the leveraged loan market and the broader syndicated loan market. adequacy of loan loss allowance as the banking system has faced a more difficult environment in recent quarters, our examiners have identified significant weaknesses at some institutions in identifying and reserving against problem loans, which in some cases have led to deficiencies in allowance levels at some supervised institutions. in response, our examiners continue to remind bankers that allowance levels should be reflective of loan portfolio quality, based on sound processes, and consistent with current supervisory guidance. we recently provided additional clarity to our examiners regarding existing interagency guidance on loan loss allowances that should be factored into current examinations and inspections of state member banks, bank holding companies, and their nonbank subsidiaries. we believe this further clarity to our examination staff will help them in their regular discussions with bankers to ensure that reserving practices are robust and loan loss allowances are indeed adequate to the circumstances facing each institution. liquidity risk management recent reports cite the need for enhancement to liquidity risk management as one of the key lessons from recent events. financial institutions must understand their liquidity needs at both the legal entity and enterprise - wide level and be prepared for the possibility that market liquidity may erode quickly, unexpectedly, and for a protracted time. as is now widely recognized, many contingency funding plans did not adequately prepare for the possibility that certain off - balance - sheet exposures might have to be brought onto the firm's balance sheet, calling on available liquidity. nor did they adequately account for the possibility of widespread and protracted declines in asset market liquidity. while liquidity pressures in banking and financial markets have

##igler ( 1961 ), " the economics of information ", journal of political economy, vol. 69 ( june ), pp. 213 - 25. thomas a. durkin ( 2006 ), " credit card disclosures, solicitations, and privacy notices : survey results of consumer knowledge and behavior ", federal reserve bulletin, vol. 92, pp. a109 - a121 ; thomas a. durkin and gregory elliehausen ( forthcoming ), financial economics of information disclosure : applications to truthin - lending ( new york : oxford university press ). consumers. 9 the prohibition of the provision of misleading or erroneous information can also help to improve competitive outcomes. to evaluate the effectiveness of disclosures, we must know what consumers understand, what information they use, and how they use the information in making decisions. in designing rules, we need to take consumers'actual behavior and understanding into consideration. as a result, the federal reserve has been using consumer testing to address the considerable challenge of making disclosures effective. as mentioned, consumers increasingly face more - diverse and more - complex financial products, including nontraditional mortgages and credit cards with multiple and complex features. given this complexity, we are mindful of the challenges of information overload and seek to design disclosures that are not only accurate, but also clear and concise, so that they are meaningful and useful to consumers. numerous pages of fine print may provide the comprehensive descriptions that lawyers may prefer, but they can also be confusing, or provide limited value, to consumers. we increasingly rely on feedback from surveys and testing from actual consumers to determine the information they need to make informed choices. in this regard, we recently completed several rounds of consumer testing for credit card disclosures. that testing has been essential to our effort to redesign and improve them. we have also begun using consumer testing of mortgage disclosures to help develop more - effective disclosures around product features and other terms that consumers need to know. limitations of disclosure protections when consumers are fully aware of and understand product terms and features, they are better positioned to make the right choices and achieve the outcomes most appropriate to their given circumstances, as well as give the signals and rewards to businesses that produce the products and services consumers most value. however, some product features and contract terms may be so complex that they are not readily understood. in some instances, even small misunderstandings, misjudgments, or the challenge of focusing on the most essential features