way by adopting policy stances that cut off credit to borrowers with credible prospects. despite some isolated pronounced losses at a few large institutions, their effect on earnings so far has been modest in the aggregate. more widespread has been shrinking net interest margins arising from a rapid rise in liability costs, with more than a third of the largest bank holding companies experiencing declines in these margins of 25 basis points or more compared with a year ago. on the other hand, savings institutions have had less severe margin contractions, and smaller commercial banks have generally been able to keep their margins stable. the relatively moderate margin decline for savings institutions may reflect the success of their hedging programs. the more favorable margin trends at smaller commercial and savings institutions are also probably linked to their relatively higher levels of core deposits, which have been less sensitive to rising rates. that said, a growing dependence on wholesale funding is becoming an established trend for large and small institutions alike. as loan growth has greatly exceeded that of deposits, liquidity benchmark ratios such as loans - to - deposits have reached historic peaks. although day - to - day decisions about wholesale versus retail funding may appear immaterial at the time, the effect of such decisions may gradually transform the overall liquidity and risk profile of an institution. it is crucial, therefore, that bank managers take stock of how their balance sheets have evolved - including the widening menu of choices available to customers on both sides of that balance sheet - and understand the accompanying implications. the freedom to manage your liability structure is still constrained by one remnant of 1930 ’ s era banking regulation - the prohibition of interest on demand deposits. this is of particular concern to community bankers, of course, given that larger banks are offering interest to their customers through sweep accounts. pending legislation modernizing the law would potentially help bolster deposit growth and open opportunities for other profitable customer relationships without the unproductive and costly circumventions of the existing statute. capital, of course, is the key to maintaining stability in the midst of the risks of the evolving financial and economic landscapes. recognizing that fact, regulators are working toward implementation of capital standards that are more risk - sensitive through the international basel capital accord. that effort, however, is largely directed toward the diversity of risks facing the largest banks and will undoubtedly require an even greater level of complexity than the current standards. for those of you who already view the current capital framework as too complicated, let me offer some encouraging words. the us banking agencies published last

ben s bernanke : policy coordination among central banks speech by mr ben s bernanke, chairman of the board of governors of the us federal reserve system, at the fifth ecb central banking conference “ the euro at ten : lessons and challenges ”, frankfurt am main, 14 november 2008. * * * i am pleased to be here in frankfurt today to celebrate the 10th anniversary of the euro. the euro ’ s introduction was a remarkable achievement. as an academic, i did a bit of consulting for the european monetary institute, the european central bank ’ s ( ecb ) predecessor, on monetary transmission mechanisms ; i thus played a part, albeit an extremely small one, in this grand project. i mention this only as a reminder that the creators of the euro drew on monetary expertise from around the world, an early example of the international cooperation that has since proven to be one of the hallmarks of the ecb. indeed, the run - up to the euro ’ s establishment and the experience of the past decade have been associated with an unprecedented degree of policy coordination among the sovereign states within the euro area, including cooperation in the areas of fiscal and regulatory policies as well as monetary policy. the current financial crisis and global economic slowdown likewise have been an occasion for unprecedented international policy coordination, within europe but also globally. for example, in its regulatory capacity, the federal reserve has worked closely with regulators and supervisors from a number of european nations, and we are active participants in the international financial stability forum and the standard - setting bodies operating under the aegis of the bank for international settlements. my focus today, however, will be cooperation in monetary policy and, especially, in the meeting of the liquidity needs of our increasingly globalized financial markets. as you know, financial markets remain under severe strain. the proximate cause of the financial turmoil was the end of the u. s. housing boom and the attendant losses on mortgages and mortgage - related assets by many institutions. however, more fundamentally, the turmoil was the product of a global credit boom, characterized by a broad underpricing of risk, excessive leverage by financial institutions, and an increasing reliance on complex and opaque financial instruments that have proven to be fragile under stress. the unwinding of this boom ( and the associated financial losses ) has led to the withdrawal of many investors from credit markets and deleveraging by financial institutions, both of which have acted to constrict available credit to households and businesses.