policy – by assuring the public and markets that it intended to keep the policy rate low for some time, and for a longer period than the public initially expected. at first, the committee employed purely qualitative language to send this message : after the fomc stated in december 2008 that it would likely be appropriate for the federal funds rate to remain near zero for “ some time, ” it changed the formulation in march 2009 to “ an extended period. ” 5 however, such language did not convey very precisely the committee ’ s intentions. in august 2011, the committee introduced a specific date into its guidance, stating that conditions would likely warrant keeping the federal funds rate target near zero at least through mid - 2013. 6 this date - based guidance was more precise than the qualitative language the committee had been using, and it appears to have been effective in communicating the fomc ’ s commitment to a highly accommodative policy. in particular, following the introduction of dates into the fomc statement, interest rates and survey measures of policy expectations moved in ways broadly consistent with the guidance. 7 although the date - based forward guidance appears to have affected the public ’ s expectations as desired, it did not explain how future policy would be affected by changes in the economic outlook – an important limitation. indeed, the date in the guidance was pushed out twice in 2012 – first to late 2014 and then to mid - 2015 – leaving the public unsure about whether and under what circumstances further changes to the guidance might occur. 8 in december of last year, the fomc addressed this issue by tying its forward guidance about its policy rate more directly to its economic objectives. 9 introducing so - called state - contingent guidance, the committee announced for the first time that no increase in the federal funds rate target should be anticipated so long as unemployment remained above 6 - 1 / 2 percent and inflation and inflation expectations remained stable and near target. 10 this formulation see, for example, eggertsson and woodford ( 2003 ) and reifschneider and williams ( 2000 ). see board of governors ( 2008, 2009 ). see board of governors ( 2011 ). evidence that this is the case has been provided by campbell, evans, fisher, and justiniano ( 2012 ), swanson and williams ( 2013 ), raskin ( 2013 ), and by a recent study of the federal reserve bank of new york ’ s survey of primary dealers ( femia, friedman, and sack

short - and long - term credit. large and small businesses rely on banks for payment processing, short - term credit, and backup credit lines. and governments rely on the banking system to conduct payments, distribute currency, safeguard tax receipts, and to serve as a conduit for monetary policy. in short, the basic business functions of banks are at the heart of the financial system and the economy overall. by the definition i put forward earlier, i would have to say that these basic functions performed by banks are and will remain special. however, it is far from clear that these functions can only be performed by banks or that there is always a “ special ” public purpose in ensuring that banks ’ role in performing such functions is protected. indeed, as governor george noted, nonbanks have made impressive inroads in markets that previously had been largely banks ’ domain. for example, money market mutual funds and stock and bond mutual funds have lured billions of dollars that formerly had been placed in staid bank investments such as certificates of deposits. most mutual funds now also offer some “ banking ” services such as checkwriting privileges. the advent of asset securitization has allowed nonbank mortgage companies to compete successfully with banks in the home mortgage market, and nonbanks have also been important players in the explosion of new financial instruments such as derivatives and structured notes. for the most part, this blurring of the traditional lines between banks and nonbanks seems to be a positive development. new competitive forces have been unleashed, financial innovation has accelerated, and businesses and households now enjoy a far greater range of choices on their menu of financial services than they did only a decade ago. banks have responded vigorously - - and i would say successfully, given recent trends in profitability - - to the challenges posed by nonbank competitors. to be sure, such rapid changes have also posed new risks. it is critical in this environment that policymakers stay abreast of market developments to ensure that banks and nonbanks face the right incentives in assessing the risks of their business decisions, and likewise to ensure that consumers and investors have the best possible information available to them when choosing among financial services and products. thus, while i agree that the basic functions of banks in making credit available, in providing safe investment choices ( deposits ) for households, and in processing payments are special, i see little to be gained by insisting that banks always be the only type of entity that can provide such services. the case of electronic