, the investment bank lehman brothers, and the insurance company american international group ( aig ). the federal reserve believes that, whenever possible, the difficulties experienced by firms in financial distress should be addressed through private - sector arrangements – for example, by raising new equity capital, as many firms have done ; by negotiations leading to a merger or acquisition ; or by an orderly wind - down. government assistance should be provided with the greatest reluctance and only when the stability of the financial system, and thus the health of the broader economy, is at risk. in those cases when financial stability is broadly threatened, however, intervention to protect the public interest is not only justified but must be undertaken forcefully and without hesitation. fannie mae and freddie mac present cases in point. to avoid unacceptably large dislocations in the mortgage markets, the financial sector, and the economy as a whole, the federal housing finance agency put fannie and freddie into conservatorship, and the treasury, drawing on authorities recently granted by the congress, made financial support available. the government's actions appear to have stabilized the gses, although, like virtually all other firms, they are experiencing effects of the current crisis. we have already seen benefits of their stabilization in the form of lower mortgage rates, which will help the housing market. the difficulties at lehman and aig raised different issues. like the gses, both companies were large, complex, and deeply embedded in our financial system. in both cases, the treasury and the federal reserve sought private - sector solutions, but none was forthcoming. a public - sector solution for lehman proved infeasible, as the firm could not post sufficient collateral to provide reasonable assurance that a loan from the federal reserve would be repaid, and the treasury did not have the authority to absorb billions of dollars of expected losses to facilitate lehman's acquisition by another firm. consequently, little could be done except to attempt to ameliorate the effects of lehman's failure on the financial system. importantly, the financial rescue legislation, which i will discuss later, will give us better choices. in the future, the treasury will have greater resources available to prevent the failure of a financial institution when such a failure would pose unacceptable risks to the financial system as a whole. the federal reserve will work closely and actively with the treasury and other authorities to minimize systemic risk. in the case of aig, the federal reserve and the treasury judged that a disorderly failure would

feedback loops between the two. this focus is different to the conduct - of - business - based rules that investment funds, for instance, have been subject to traditionally. the potential for collective action problems is the main rationale for a macroprudential perspective in the market ‑ based finance sector, it is not concerned with idiosyncratic risk management issues at individual funds, although there are complementarities. progress has been made in strengthening the resilience of the funds sector since the financial crisis. for instance, the mmf regulation and aifm directive in the eu contain provisions that are more directed at increasing the resilience of funds and their managers. we at the central bank have been at the forefront of efforts to develop and operationalise the macroprudential framework for the funds sector. our strategy for this is based on two elements : first, examining the links between and risks from the fund sector to the domestic economy ; and second, given ireland ’ s role as a global hub for investment funds, participating in the global debate, seeking to advance the thinking on the development of the framework. the exposures of irish funds are largely international in nature but linkages to the domestic economy have been growing, especially via exposures to the commercial real estate market ( cre ). that is why we started a consultation last november on macroprudential measures for irish - domiciled property funds. our aim is to safeguard the resilience of the sector and ensure it is better able to absorb rather than amplify adverse shocks. we have had good engagement on these proposals and are now considering the feedback received before we finalise the design of the measures. we expect to announce the outcome over the coming months. we are working actively with colleagues – including taking leadership roles – at the fsb, iosco, esrb and esma as we develop the international macroprudential response to market based finance. key focus areas for us in these discussions are encouraging more use of certain liquidity management tools ( such as swing pricing ), achieving greater levels of consistency between asset liquidity and redemption terms ( especially for funds that invest in assets that generally do not trade ) and evaluating the wider approach to data for analysis of systemic risk from funds ( accounting for gaps in a proportionate and efficient way ). overall, it would be true to say that the macroprudential perspective ( for market - based finance ) remains underdeveloped, especially when compared with other parts of