programs will be terminated when conditions are no longer so adverse. those programs and others have been designed to be unattractive in normal market conditions and will naturally wind down as markets improve. however, our newly purchased treasury securities and mbs will not mature or be repaid for many years ; the loans we are making to back the securitization market are for three years, and their nonrecourse feature could leave us with assets thereafter. but we have a number of tools we can use to absorb the resulting reserves and raise interest rates when the time comes. we can sell the treasury and agency debt either on an outright basis or temporarily through reverse repurchase agreements, and we are developing the capability to do the same with mbs. we are paying interest on excess reserves, which we can use to help provide a floor for the federal funds rate, as it does for other central banks, even if declines in lending or open market operations are not sufficient to bring reserves down to the desired level. finally, we are working with the treasury to promote legislation that would further enhance our toolkit for absorbing reserves. our work on the framework for exiting these programs is one indication that we are focused on maintaining price stability over time even as we concentrate for now on promoting economic recovery. another such indication is our increased emphasis on defining the price stability goal more clearly. already the fomc has extended its forecast horizon to indicate where the governors and reserve bank presidents would like to see inflation coming to rest over time. and we are continuing to discuss within the committee whether an explicit numerical objective for inflation would be beneficial. under current circumstances, those benefits would include underscoring our understanding that our legislative mandate for promoting price stability encompasses both preventing inflation from falling too low in the near term and from rising too far as the economy recovers. have we compromised our independence? no. central banks all over the world and the legislatures that created them have recognized that considerable independence from short - run political influences is essential for the conduct of monetary policy that promotes economic growth and price stability. to be sure, in the process of combating financial instability, we have needed to cooperate in unprecedented ways with the treasury. our actions with the treasury to support individual systemically important institutions have sparked intense public and legislative interest. as chairman bernanke has indicated, the absence of a regime for resolving systemically important nonbank financial institutions has been a serious deficiency in the current crisis, one that the congress needs to remedy. congress

have longed recognized that the existing capital rules need to be updated. these modifications are needed to reflect changing products and risk exposures and also to address potential competitive impacts from basel ii. we plan to issue these proposals for public comment concurrently with, or soon after, the npr on basel ii to allow the banking community to comment on a combined package. i will now turn to some observations about operational risk. observations related to implementing an ama as you may know, i have spent much of my career in the field of risk management, and of course the federal reserve has a keen interest in this topic. 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 aspects of risk management brought about by improved databases and technological advances. indeed, the development of techniques for the measurement and management of operational risk is very dynamic, with much progress being made relatively recently. evidence of this dynamic development process can be seen in the results of an interagency ama benchmarking exercise conducted last year, as well as the results of the operational - risk - loss data - collection exercise and qis4. in fact, one very encouraging sign of progress in measuring operational risk is the broad participation we saw in the loss data - collection exercise and on the operational - risk portions of qis4. as you will hear in more detail later this morning, twenty - seven institutions participated in these exercises ; and it appears that, based on our preliminary analysis of the submissions, significant progress has been made in the collection of operational - risk data and the quantification of operational risk. a review of the loss data submitted by you and your colleagues shows a substantial increase in the number of institutions collecting operational - risk data over the past five years. in addition, the qis4 responses suggest that although significant quantification challenges remain, many institutions are developing sophisticated approaches for measuring their operational - risk exposure. it has often been argued that measuring operational risk is much more difficult than measuring market or credit risk. the lack of a consistent definition of operational risk ( until recently ) ; the central role of the internal control environment ; the relatively short time span of historical loss data ; and the important role of infrequent, but very large, loss events are just some of the challenges that operational - risk measurement systems have had to confront. coming up with credible ways of capturing the tail of the loss distribution and, just as important, of verifying that it