. these unusual extensions of our lending facilities have raised concerns about the federal reserve taking on credit risk. while those concerns are understandable, i want to emphasize that we have taken a variety of steps to minimize credit risk in setting up the various nontraditional and temporary credit facilities that we have made available to a number of new borrowers. for almost all the loans we have made, we look first to sound borrowers for repayment and then to underlying collateral. moreover, we lend less than the value of the collateral, with the size of the " haircuts " depending on the riskiness of the collateral and on the availability of market prices for the collateral. some of our lending programs involve nonrecourse loans that look primarily to the collateral rather than to the borrower for repayment. in these instances, we typically have taken only the highest - quality collateral, and, in many cases, we have coordinated with the treasury to have other sources available to absorb any losses that might nonetheless occur. an example of a program that relies importantly on monetary - fiscal coordination is the term asset - backed securities loan facility, whereby protection against credit risk takes the form of capital provided by the treasury, using funds appropriated by the congress for the troubled asset relief program. to be sure, loans or credit protection offered in association with government help to stabilize individual systemically important institutions likely have higher credit risk than our more general liquidity facilities. but even in these few cases, which occurred under emergency conditions, we have taken steps to protect the federal reserve from credit losses and have asked the treasury to take these loans off our balance sheet. to reduce the risk of future problems here, a new regulatory regime should be developed that will allow the u. s. government to address effectively at an early stage the potential failure of any systemically critical financial institution. finally, there is the question of whether the federal reserve has become involved in the inherently fiscal function of allocating credit to specific sectors of the economy. because of the lack of liquidity, risk - taking, and arbitrage in markets, we have been forced to counter tight financial conditions through interventions in particular markets, which can have differential effects. but our actions have been aimed at increasing credit flows for the entire economy, and they have been effective in that regard. for example, our large - scale asset purchases of agency securities and agency - guaranteed mbs have helped mortgage markets, but they also appear to have put downward pressure on other long - term

allowed a rapid and near - complete opening of the domestic economy. the recent short lockdowns have not been as disruptive for the economy as the earlier, longer ones. and while the border closure has posed challenges in some parts of the economy, so far it has not materially impeded the recovery. policy support has also been key to this positive surprise. additional monetary and fiscal policy support over the course of the past year, beyond the initial responses, boosted the outlook beyond what was originally envisaged. three lessons different economies have had very different experiences as the pandemic has evolved. but 3 common themes have emerged, from which we can draw lessons : in a big shift, people adapt when the crisis is over, people bounce back and when policy supports, people respond. in a big shift, people adapt throughout the history of our species, humans have adapted to many different environments and a range of challenges. when circumstances change, we adapt. we can see this adaptability in the economic response to subsequent waves of the pandemic. even though lockdowns were in many cases at least as stringent as the first time around, the drag on activity was usually smaller. this was the pattern in victoria's second lockdown, and even more starkly in the winter lockdowns in the northern hemisphere late last year and early this year. conditioned to the extreme effects of the lockdowns in march and april last year, many forecasters – including us – overestimated how damaging subsequent ones would be. output did decline in many advanced economies in the december quarter of last year or the march quarter of this year. but in almost all cases, the outcome was not as bad as forecasters expected ( graph 1 ). graph 1 distribution of gdp growth surprises * q4 2020 and q1 2021 no no - 0. 5 0. 0 0. 5 1. 0 1. 5 2. 0 2. 5 3. 0 3. 5 4. 0 4. 5 5. 0 5. 5 percentage point surprise * actual compared with consensus forecasts around a fortnight prior ; based on 2 quarterly observations for a sample of 20 economies including australia and its major trading partners sources : ceic data ; consensus economics ; rba ; refinitiv one way people adapted was finding ways to operate effectively while in lockdown. i'm sure you all remember the rush in march last year to get everyone who could working from home. not all firms and not all