conclusion even when the crisis was at its apex, students of history recognized that the momentum for reform of the financial system that was then so strong could fade quickly. legislators and officials move on to other issues, as does the public. there is some reason to believe this waning of interest and support has already occurred. the reform agenda that variously includes basel iii, administrative implementation of the dodd - frank act, and other initiatives continues, to be sure. but, particularly with respect to the shadow financial system, there is much that remains to be done. bis central bankers ’ speeches

through common exposures of the firm ’ s balance sheet with those of other firms. typically, these first two effects will scale with a firm ’ s size as well. these effects are directly relevant to concerns about the too - big - to - fail ( tbtf ) syndrome that have animated much of the reform debate in the past few years. the views presented here are my own and not necessarily those of other members of the board of governors of the federal reserve system or the federal open market committee. a related effect is liquidity hoarding, whereby firms suspend their normal extensions of liquidity to other firms in anticipation of, and in an effort to insulate themselves from, domino or fire - sale effects. bis central bankers ’ speeches the traditional tbtf concern is that of moral hazard – the expectation that, when faced with the prospect of either variant of a major blow to the financial system, government authorities will provide funds or guarantees to the firm to keep it functioning. creditors and managers of firms who anticipate such support may not price into their credit or investment decisions the full risk associated with those decisions. as a result, the firms may become more leveraged and thus still larger, an outcome that would only reinforce the belief that the government will not allow them to fail. the consequence can be both a competitive funding advantage for these large firms and more underlying risk to the financial system. important as it is, moral hazard is not the only worry engendered by very large, highly interconnected firms in financial markets. assuming that a government overcomes timeconsistency problems and credibly binds itself not to rescue these institutions, their growth would presumably be somewhat circumscribed. but it is possible, perhaps likely, that some combination of scale and scope economies, oligopolistic tendencies, path dependence, and chance would nonetheless produce a financial system with a number of firms whose failure could bring about the very serious negative consequences for financial markets described by the domino and fire - sale effects. in contrast to these first two effects, the contagion effect is not necessarily a function of size at all. the run on money market mutual funds began in september 2008 after the “ breaking of the buck ” by the reserve primary fund, less because of its size than because of what its vulnerability told investors about the balance sheets of other funds. earlier that year, stress on the british banking system had increased significantly following the failure and subsequent nationalization of northern rock, a mid -