jerome h powell : structure and liquidity in treasury markets speech by mr jerome h powell, member of the board of governors of the federal reserve system, at the the brookings institution, washington dc, 3 august 2015. * * * i ’ m very pleased to be here to discuss the current structure of the treasury markets. 1 my involvement with these markets dates back to the early 1990s, when i served as under secretary of the treasury for finance. some of you will recall the salomon brothers auction bidding scandal that broke in the summer of 1991. that event required those of us with oversight responsibilities to do a thorough evaluation of the structure of the primary treasury market, and ultimately to propose a series of reforms. 2 as part of that process, we put together a public conference to consider further reforms to treasury auction procedures, with the participation of regulators, academics, and the financial sector. some of the ideas that came out of that conference eventually led to changes in the way primary auctions were conducted, changes that i believe were beneficial to the efficiency and integrity of the treasury market. the issues we are discussing today relate to the secondary market rather than to the auctions. although the treasury market remains deep and resilient, there are nonetheless reasonable questions as to whether market functioning can be improved. the events of october 15 last year have been folded into the more general debate about market liquidity across a number of markets. i take the concerns about a decline in market liquidity seriously. hard evidence on the level of liquidity in secondary treasury markets is mixed, with some measures at or above pre - crisis levels and some suggesting a reduced ability to buy or sell large positions without material price effect – a reasonable definition of liquidity. 3 it is also possible that liquidity may be more prone to disappearing at times of stress. on october 15, for example, market depth declined sharply, and we saw a sudden spike in prices that was without precedent for a period with little relevant news. other events – such as the 2013 “ taper tantrum, ” the “ bund tantrum ” last spring, and the sharp moves on march 18 in the euro - dollar exchange rate – all broadly show the same pattern : rapidly diminishing liquidity, and large price moves for a given quantum of news. 4 but the causes and implications of these events are unclear. is this the new normal? we don ’ t know. current macroeconomic and market conditions are unprecedented in many respects. for now

), article 106290. - 14 conclusion let me conclude by reiterating that technological innovation and resilience are both attributes of a healthy financial system. i will, of course, remain vigilant with respect to vulnerabilities that appear to be evolving as well as emerging risks, but i see a system that is sound, resilient, and able to support the needs of households, communities, and businesses. the good position of the financial system is consistent with a broader economy that is strong, with a solid labor market and moderating inflation. thank you for your indulgence and thanks, again, to dean logue and the university of michigan law school for hosting this conference. i look forward to our discussion.