my customer. more often than not, the customer was someone i knew well, and had been lending to for years. occasionally, he or she represented the second or even third generation to run the business. or the business itself was the second or third venture that i had financed for the same borrower. there were financial statements to be gathered and analyzed. usually it was difficult, if not impossible, to separate the business and personal finances. but understanding the borrower ’ s ability to successfully run a business was just as important as analyzing the numbers. i spent a lot of time talking to business owners about their businesses. in fact, sometimes i thought they came in looking for a sounding board for their ideas as much as they were looking for money. and i couldn ’ t always make the loan. at times, especially during the economic downturn of the early 1990s, i had to deal with problem loans. some were resolved through restructure and some through foreclosure. now, as a bank regulator in the middle of a financial crisis, this deep personal understanding of the lending and loan collection process strongly influences my policy views. and i have never lost sight of the importance of those small businesses to local economies or the importance of loan availability to small businesses. from community banker to central banker i fully expected to complete my career working as a community banker in my hometown. but in early 2007, i received a call asking if i would be interested in serving as a member of the board of governors of the federal reserve system. i was intrigued, flattered, and more than a little intimidated by the prospect. i had interacted with the fed throughout my banking career and had even served on the board of directors of the richmond federal reserve bank. so i knew a lot about the federal reserve. but there was no way that i, or anyone else, could have foreseen the tumultuous events that were about to unfold. the federal reserve is the central bank of the united states. the congress created the federal reserve in 1913, after a series of banking panics, “ to furnish an elastic currency, to afford a means of rediscounting commercial paper, to establish a more effective supervision of banking in the united states and for other purposes. ” 1 when i joined the board of governors in august 2008, the fed ’ s ability to respond to financial crises was about to be tested as never before. federal reserve act, ch. 6, 38 stat

brian p sack : dollar asset markets – prospects after the crisis remarks by mr brian p sack, executive vice president of the markets group of the federal reserve bank of new york, at the financial markets association aci 2010 world congress, sydney, 26 march 2010. these remarks were presented via video conference from new york. * * * introduction the recent financial crisis provided global capital markets with the most significant stress event that they have faced in many decades. for u. s. asset markets, this episode revealed a wide range of outcomes in terms of their ability to function though a period of stress. some markets demonstrated remarkable liquidity and an unparalleled status as a safe haven for investors ; others simply fell apart as investors shied away from illiquid assets with too much complexity and opacity and too much exposure to counterparty risk. indeed, for many of the markets involved in the intermediation of credit in the u. s. financial system, the crisis revealed structural deficiencies that made the system unstable. once revealed, this instability required an immediate and forceful policy response to limit the damage. as certain markets ground to a halt, policymakers took extraordinary actions to mitigate the damage to the broader financial system and, ultimately, to the real economy. those actions, which included a range of liquidity facilities launched by the federal reserve and by central banks around the world, proved effective and brought the financial system back from the brink of a complete meltdown. however, the provision of emergency liquidity and other forms of support were only a bridge to bring the financial system to a more stable point. it is now necessary to work towards creating a more robust financial system that addresses the structural deficiencies that brought us to the brink in the first place. many reform initiatives are now being debated, with the discussions involving a range of market participants, central banks, regulatory agencies and the u. s. congress. it is important that these initiatives result in outcomes that reduce the chances and consequences of another financial crisis ; and it is equally important that they not impede the effective functioning of financial markets during normal periods. my comments today will review the lessons that can be drawn from the performance of u. s. financial markets during the crisis and will describe some of the changes that may occur as we migrate toward a more stable and effective financial system. capital markets that demonstrated resilience in many ways the crisis underscored the unique characteristics of dollar - denominated asset markets. this can be