monetary means, the degree of control of the central bank is of paramount importance. " ( pp. 3 - 4 ). statistics. in 1939, the federal reserve began a project to bring together the available historical data on banking and money. this effort culminated in 1943 with the publication of banking and monetary statistics, which included annual figures on demand and time deposits from 1892 and on currency from 1860. academic interest in monetary aggregates increased after world war ii. milton friedman ’ s volume studies in the quantity theory of money, which contained phillip cagan ’ s work on money and hyperinflation, appeared in 1956, followed in 1960 by friedman ’ s a program for monetary stability, which advocated that monetary policy engineer a constant growth rate for the money stock. measurement efforts also flourished. in 1960, william j. abbott of the federal reserve bank of st. louis led a project that resulted in a revamping of the fed ’ s money supply statistics, which were subsequently published semimonthly. 5 even in those early years, however, financial innovation posed problems for monetary measurement, as banks introduced new types of accounts that blurred the distinction between transaction deposits and other types of deposits. to accommodate these innovations, alternative definitions of money were created ; by 1971, the federal reserve published data for five definitions of money, denoted m1 through m5. 6 during the early years of monetary measurement, policymakers groped for ways to use the new data. 7 however, during the 1960s and 1970s, as researchers and policymakers struggled to understand the sharp increase in inflation, the view that nominal aggregates ( including credit as well as monetary aggregates ) are closely linked to spending growth and inflation gained ground. in 1966, the federal open market committee ( fomc ) began to add a proviso to its policy directives that bank credit growth should not deviate significantly from projections ; a similar proviso about money growth was added in 1970. in 1974, the fomc began to specify " ranges of tolerance " for the growth of m1 and for the broader m2 monetary aggregate over the period that extended to the next meeting of the committee. 8 in response to house concurrent resolution 133 in 1975, the federal reserve began to report annual target growth ranges, 2 to 3 percentage points wide, for m1, m2, a still broader aggregate m3, and bank credit in semiannual testimony before the congress. in an amendment to the federal reserve act in 1977, the congress formalized the federal reserve

, especially in the subprime sector. performance deterioration is most notable in the more recent vintages. many industry observers believe the poor performance of more recently originated subprime loans is due primarily to looser underwriting standards, including limited or no verification of borrower income and high loan - to - value transactions. subprime lending has certainly created homeownership opportunities for borrowers with weaker or less certain credit histories. but because of the increased risk profile, lenders need to be especially diligent in maintaining prudent underwriting standards and in promoting manageable loan terms and sufficient consumer disclosure practices. further, as part of an erm process, as lenders design more complex products they need to identify ways to clearly communicate the product features and risks to their customers. subprime mortgages typically carry higher interest rates than prime loans. it is not uncommon to find margins of 600 basis points or more on adjustable rate subprime loans after the expiration of a teaser rate. not surprisingly, some borrowers are unable to keep up with their mortgage payments once these payments fully adjust. in some cases, if alternative financing cannot be found, borrowers may be forced to sell their home or enter foreclosure. and given prepayment penalties, home price appreciation slowing significantly and capital market investors becoming more conservative, some borrowers may be having more difficultly in refinancing to avoid foreclosure. supervisors are discussing what can be done to ensure that these types of loans are being originated in a safe and sound manner and that consumers are being provided with clear and balanced information so that they can fully understand the terms and risks of these products. subprime loan underwriting, when done prudently, should reflect all relevant credit factors, including the borrower's ability to service the debt. in the current environment, risk managers should review policies governing the use of loans with limited or no documentation and simultaneous - second mortgages. lenders that do not account for tax and insurance burdens in assessing borrower qualifications should understand the associated risks. it may even be prudent to escrow tax and insurance payments to ensure that the collateral is adequately protected from physical casualty losses as well as tax liens, or the lender should inform borrowers what should be set aside to meet the periodic insurance and tax payments on their homes if these payments are not already included in their total monthly mortgage payment. conclusion all financial institutions need sound risk -