Banner for 2025 Financial Markets Conference

May 19, 2025

Welcome and Monday Morning Keynote: Raphael Bostic and Philip N. Jefferson

The opening event for FMC 2025 featured welcoming remarks from Atlanta Fed president Raphael Bostic, a speech by Philip N. Jefferson, vice chair of the Board of Governors of the Federal Reserve System, and a Q&A session moderated by President Bostic.

Transcript

Raphael Bostic: So, we do "call and response" in the South. I learned this when I got here very quickly, so I want to try this again. Good morning, everyone. I'm feeling at home now; thank you very much.

Welcome. I want to welcome you all to the Federal Reserve Bank of Atlanta's 29th Financial Markets Conference. It is so good to see so many familiar faces here in the audience, and I want to add a special welcome to those of you who are watching us via the livestream; I want to thank you for tuning in.

Now, right off the bat, I want to recognize the dozens of Atlanta Fed staff and people here at the Omni Amelia Island Resort who have made this event possible. I appreciate you so much, as does the leadership of the Bank, for putting this together and having it be such a great experience. And as I think many of you know who have done events, the logistics of doing programs like this are quite intense, and they really continue on until after all of us are home—so, I just want to say a huge "thanks" to all of you; it's really a great thing. We literally would not be doing this without you, so thank you.

Now, as I mentioned, the Financial Markets Conference is now roughly 30 years old, and some would call it "venerable." I'm not sure I would use that word, but at the risk of boasting, I do think this conference has established itself as one of the top-tier research and policy events held by the Federal Reserve Banks in the Federal Reserve System. Since the conference's inception in the 1990s, we have hosted every Fed chair, starting with Alan Greenspan and continuing on to Ben Bernanke, Janet Yellen, and of course Jay Powell.

And conferences have covered about every relevant concern one could imagine: data privacy, housing finance, the importance of trust in financial institutions, information asymmetries, global trade finance, and the evolution of structures meant to ensure financial system stability. The overarching idea of this conference in general is that we want to make sure that we're talking about topics that are relevant, in real time. In 2007, for example, we concentrated on the rise of credit derivatives, which would soon play a leading role in triggering a global financial crisis and a recession.

In my first Financial Markets Conference as Atlanta Fed president in 2018, we explored machine learning and artificial intelligence, including—and here I quote the agenda—"the transformative possibilities inherent in artificial intelligence and related technologies." Now, I can't take credit for choosing that topic, but it's clearly only become more salient to our understanding of financial markets and the macroeconomy since then.

And that's the "what" of these conferences, and that's very important; but I also appreciate the "how" of this conference. We encourage frank exchanges of ideas and views, and we keep things civil, yet we've certainly had spirited conversations and discussions. There was a memorable panel on cryptocurrency a couple of years ago; it was a winner, I will tell you. And then some years back we were treated to an exchange of dramatically different viewpoints on high frequency trading that involved a Nobel Prize winner. So, when you're on this stage, you have to stay on your feet because you never know what may actually happen.

Now, every year we aim to make this event stimulating and substantive, and in the seven years that I've been doing this, the feedback that I have gotten has made clear that the goal has been achieved. I have no doubt that this year's conference will continue in that tradition.

Now as you know, there are a few things going on right now in the world that are relevant for macroeconomics, for financial markets, and for policy. And though trade and immigration policy are important topics, we won't be doing any deep dives on them this time—but I'm sure you all are having conversations on that anyway. There will be a lot going on there.

Financial markets are ever evolving, and regulation and policy both respond to, and influence, that evolution. This is why we all gather, and that is where we will focus our energy and attention these next two days.

Our agenda promises plenty: advancing critical conversations, seriously examining forces influencing price stability, labor markets and financial stability, and bringing to bear varied perspectives in that pursuit. Those are the fundamental reasons why the Federal Reserve System—and the Atlanta Fed, in particular—convene events like this.

Now, we at the Fed possess considerable research capabilities, but we can't know everything; and so, we relentlessly seek the best quality, most well-rounded thinking wherever we can find it. Over the past 28 years, we have found plenty at our Financial Markets Conference, and the intelligence produced here has proven essential in helping us perform our duties to the best of our ability on behalf of the American people.

Conferences like this play to our strength, I think, as we are in a unique position to act as an objective convener, driven by evidence-based, apolitical research and thinking. Now, we frequently assemble bankers, business leaders, financial market participants, elected officials, nonprofit leaders, researchers from various disciplines, workers, and students. It turns out that when we invite people to gather, most people show up. And this presents us with tremendous opportunity, as it allows us to sometimes bring together people who in the normal course of things would rarely find themselves in the same room, let alone at the same table—and that always produces new conversations, with similarly new insights.

And it's essential for us to hear these varied experiences and perspectives. They enrich the data that we all rely on, by adding color and texture from people making the real economy work; that in turn helps us produce more nuanced, thoughtful, and appropriate policy.

Over the coming days, we will examine financial markets and their implications for monetary policy with a somewhat scholarly orientation, and the roster of speakers is curated accordingly. My ask is that you contribute your invaluable experience and knowledge to this research and policymaking enterprise. Without your contributions through venues like this, we simply could not effectively carry out the duties that Congress has assigned us.

Now, as for today's conference—you have the agenda, so you don't need an exhaustive rundown from me. Suffice it to say that we have assembled some of the best thinkers on financial markets to discuss and debate evolving structures of financial intermediation, highlighting the changing market for bank funding and its implications for monetary policy and financial stability.

We'll have thought-provoking discussions on the role of non-bank financial institutions in Treasury and money markets, the rise of digital financial services, the impact of social media on bank deposit flows, and the ways banks and policymakers are adapting to these changes. And one session that will no doubt touch on newsy subjects is a discussion that I will moderate tomorrow evening with my counterparts, Mary Daly of the San Francisco Fed and Beth Hammack from the Cleveland Fed. And we'll discuss our monetary policy thinking at a time when the fog of uncertainty is still quite dense.

Now, my colleagues and I hope that you find the next two days stimulating and enlightening, and that you also find the time to relax and enjoy this beautiful setting. Please engage and ask questions, and I will also note that mixing with other attendees is obviously a great value of gatherings like this. So, meet someone you don't know—and please don't hesitate to approach our Atlanta Fed staff members. Talk to them, and maybe you can even explore avenues for collaborative research.

My colleagues and I have one overarching ambition for your experience at this conference. We hope that you leave here with a deeper understanding of the critical challenges facing the Federal Reserve and financial markets, at a time when complexity and uncertainty are multiplying and mutating.

Now, as I close, I'll echo something our next speaker, Fed vice chair Philip Jefferson, pointed out in a recent speech, and that is that the patterns we observe in our economy and markets are not predetermined. Outcomes can and will change as we learn more about effective strategies to improve financial market functioning and maximize the efficacy of monetary policy. By joining in these conversations and by continuing to research and describe the patterns of financial markets and economic activity, you are helping society better understand the dynamics of our economy and find new and innovative ways to help bring about an economy that works for all.

And with that, let me introduce our morning's keynote speaker, Fed Board of Governors vice chair, Philip Jefferson. Philip took office as the vice chair in September of 2023 for a four-year term, and he's been a governor since May of 2022. His term as governor ends in 2036. Before Philip joined the Board of Governors, he was dean of faculty and professor of economics at Davidson College, and he was also the chair of the economics department at Swarthmore. And a little further back, our paths crossed when we were both young research economists at the Board of Governors in the mid-1990s. Yes, there was a time I was actually a young person; I'm happy about that.

Philip's research has focused primarily on macroeconomics, poverty, and applied econometrics, and we share many of those interests—along with a deep appreciation for economics as a useful lens through which to view just about any human endeavor. Philip is going to speak today about liquidity facilities, and then he and I will have a conversation and take questions from the on-site audience. I'm very much looking forward to this conversation, and I trust you are, too. Philip, the stage is yours.

Philip N. Jefferson: Thank you, Raphael, for that kind introduction, and for the opportunity to speak to this group today. I am delighted to be here, and I look forward to discussions at this important conference.

The theme of today's conference is "Developments in Financial Intermediation and Potential Implications for Monetary Policy." As this conference embarks on a larger discussion of the role of banks and nonbanks in various market segments—including credit markets, Treasury and money markets, and payments—I believe it is worth taking a step back to explore an important background factor, which is how and why central banks provide liquidity.

The provision of liquidity by central banks is a foundational element of financial intermediation. Central banks should be able to provide liquidity effectively for the financial system to function smoothly. Today, I will take this opportunity to discuss some aspects of liquidity provision by central banks. Of course, the main forms of liquidity provided by central banks, namely currency and bank reserves, are the foundation of safe liquidity in the economy. It is vital for a central bank to make clear that it stands ready to provide liquidity should stress emerge.

But the central bank must also take steps to minimize moral hazard. "Moral hazard" in this context refers to the concern that publicly provided liquidity might encourage private financial institutions to take on excessive risk. What I would like to focus on in this speech are two types of liquidity provision that aim to reduce the frictions associated with the basic operations of banks.

The first type of liquidity is intraday credit, which is key in handling payment system frictions during the day. The second one is overnight credit, which deals with a range of frictions. I will also highlight some design features of broadly similar liquidity facilities in three other advanced economies: the UK, Japan, and the euro area. I believe it is valuable to look at other central banks' experiences with liquidity provision, which entails recognizing important differences that exist across jurisdictions and mandates and considering what lessons can be learned.

At their core, liquidity facilities support the smooth operation and stability of the banking system, the effective implementation of monetary policy, and the furtherance of safe and efficient payment systems. This activity in turn supports the flow of credit to businesses and households.

Last year, the Federal Reserve Board issued a public request for information (RFI) seeking to identify operational frictions in these facilities, and those comments are under review. I hope that today's discussion about how facilities operate in the US and around the globe can further that dialogue among participants at this conference.

Let me start by discussing how liquidity provisions work in the United States, as summarized in slide 3. Banks maintain deposit accounts at the Federal Reserve. The balances in those accounts, known as reserves, are the most liquid assets that banks have, and are used to meet payment flows as households and business customers of banks carry out their regular business. Banks often experience mismatches in the timing of payment inflows and outflows, which could cause the balance in a bank's account at the Fed to become negative. To help institutions manage this mismatch and promote the smooth functioning of the payment system, the Fed extends intraday credit, also known as daylight overdrafts.

Intraday credit facilities provide temporary credit to depository institutions, such as commercial banks and credit unions, to foster the smooth functioning of the payment system. If a bank temporarily lacks the funds to process payments, it can use intraday credit to avoid delaying payments until it has sufficient liquidity.

The Fed provides intraday credit on both a collateralized and uncollateralized basis. Collateralized intraday credit is provided free of charge, whereas uncollateralized credit incurs a fee. Since this type of credit is provided on an intraday basis, the Fed expects banks to have positive balances in their accounts by the end of the operational day. If a bank has a negative balance at the end of the day, it incurs an overnight overdraft and pays a penalty.

The Fed also provides overnight credit through the discount window to approved counterparties against a broad range of collateral. This type of liquidity provision is designed to mitigate short-term misallocations of liquidity. For example, a bank may need to settle a large payment at the end of the day, but it may temporarily have insufficient funds in its accounts to do so. To meet the payment obligation, the bank could borrow in private interbank markets—in which financial institutions lend funds to each other on a short-term basis—or from the central bank.

The rate on overnight credit also helps central banks' monetary policy implementation. In addition, overnight liquidity facilities often serve as a first line of defense against stresses, and they stand ready to provide liquidity when institutions face outflows. All discount window loans are collateralized, and a wide range of bank assets, including a variety of loans and securities, are eligible to serve as collateral.

The Fed operates three separate facilities under the discount window: primary credit, secondary credit, and seasonal credit. The first one, primary credit, is available to generally sound banks at a rate that is currently set at the top of the target range for the federal funds rate. Providing liquidity at this rate supports the implementation of monetary policy because institutions can turn to the Fed if conditions tighten in money markets that might otherwise push overnight money market rates above levels that would be consistent with the Fed's target range.

As I mentioned earlier, primary credit also helps deal with idiosyncratic funding challenges that banks might be experiencing. Most of the funding provided is on an overnight basis; however, funding is available for up to 90 days.

The next one, secondary credit, is available to banks that are not sufficiently healthy to have access to primary credit. It is available at a higher rate, features higher haircuts on collateral, and is limited to overnight credit. The third facility, seasonal credit, provides short-term liquidity to smaller institutions that experience sizable seasonal fluctuations in their balance sheets. Typically, these are banks located in agricultural or tourist areas.

Looking at central banks' experiences across jurisdictions provides useful insights about different approaches to providing liquidity. Central banks choose a combination of interest rates, collateral requirements, collateral valuation practices, and other design features to encourage usage of facilities while minimizing undesirable consequences—in particular, moral hazard.

For example, a central bank facility that provides liquidity at an attractive interest rate could be very effective in ensuring that shocks to the financial system do not disrupt the flow of credit, but may potentially increase moral hazard. If that facility only accepts a narrow set of high-quality collateral, however, then the moral hazard associated with it could be reduced. Alternatively, the usage of a facility that charges an interest rate above the market rate (a so-called penalty rate) is likely limited, but if the facility accepted a broad range of collateral, usage can be encouraged.

In these two examples, the counterbalancing choices are with respect to the interest rate charged and the eligible collateral. Different central banks might prefer one approach over the other depending on specific aspects of their frameworks and banking systems. Of course, there are challenges in comparing liquidity facilities across jurisdictions, given important differences with respect to central banks' legal authorities, monetary policy frameworks, the size of the economy and the financial sector, and institutional structures.

This divergence is also true across the four advanced countries I will consider today: the US, the UK, Japan, and the euro area. There can be large differences in each jurisdiction's banking sector and central bank balance sheets relative to the size of their economies, highlighting the need to use caution when comparing aspects of their liquidity provision.

With that caveat in mind, let's look at the design features of some foreign central bank liquidity facilities that are fairly similar to the Fed's discount window. As shown in figure 1, the Bank of England operates two such short-term facilities: an operational standing facility and a discount window. The operational standing facility features lower rates but restricts acceptable collateral to high-quality, highly liquid sovereign debt.

The discount window facility accepts a broader range of collateral, but charges a higher rate. Which facility an eligible borrower turns to in the UK depends on the sorts of collateral that are being pledged. In the US, whether an institution has access to primary or secondary credit depends on the condition of the borrower. The Bank of England monitors borrowers' conditions, and the Fed also sets haircuts on collateral based on asset riskiness. The difference in design considerations could influence how eligible borrowers integrate these facilities into their liquidity management practices.

The Bank of Japan (BOJ) has two facilities: one that provides overnight loans, and another that provides somewhat longer-term funding (up to three months). Because the BOJ has been operating a system with a very large supply of reserves for some time, its lending facilities tend not to be used extensively, other than in stress episodes.

The European Central Bank (ECB) operates a marginal lending facility quite similar to the Fed's discount window. It can meet the idiosyncratic funding needs of individual banks and serves as a ceiling on interbank rates, and thus helps the ECB implement monetary policy. This facility is an important element of the ECB framework, even though the ECB's approach to monetary policy implementation involves providing the banking system with a sizable amount of reserves through weekly (repo) lending operations.

The international differences show that central banks can accomplish their objectives using facilities with quite different designs. As I noted earlier, one of the vital purposes of a short-term liquidity facility is to be able to provide support to banking systems during stress. The Fed, the Bank of England, the Bank of Japan, and the European Central Bank have been able to do so. Figure 2 shows the short-term credit provision over time for the four central banks: the Bank of Japan, the green line; the Fed, the black line; the ECB, the blue line; and the Bank of England, the red line.

Each line is the monthly short-term credit outstanding as a share of central bank assets in 2019. This figure illustrates a few important points.

First, at most times, use of the short-term central bank liquidity facilities is modest. Second, central bank provision of short-term liquidity can increase very rapidly during times of stress. For example, the Fed and the ECB provided substantial short-term liquidity during the 2007-2009 financial crisis.

Third, the figure also illustrates that stress is not always global in nature, and peak usage does not necessarily coincide. For instance, short-term liquidity provision rose in the euro area during the European sovereign debt crisis that began in late 2009 and peaked in 2012, but it did not increase much in the United States. Similarly, short-term liquidity provision increased in the US during the March 2023 banking stress episode, but it did not increase in the euro area.

I also want to highlight that during stress events, central banks complement their regular short-term standing liquidity facilities with other facilities. Therefore, stress events may not necessarily result in an increase in liquidity provision through a short-term standing facility.

Now, let's turn to more recent developments. Over the past few years, as central banks have shrunk their balance sheets, liquidity has been gradually reduced, which has made the existing liquidity provision tools more relevant. The Bank of England and the ECB have indicated that they're moving toward operational frameworks in which short-term liquidity providing repo operations will play a key role.

The Fed has stated that it will continue to operate in an ample-reserves regime. In this regime, the primary credit rate is positioned to be slightly above the rate expected to prevail in interbank markets, so use of the discount window should typically remain modest. Still, the facility remains available to be used.

Figure 3 shows the discount window credit as a share of Fed assets over the past decade. As you can see from this figure, over the past few years, the discount window has been used more than was the case before the pandemic. Increased usage may be due to the discount rate being set closer to the private market rates than was the case before the pandemic, the availability of longer maturity loans, and shifts in communication.

Just as there are differences with respect to the provision of overnight liquidity across central banks, there are also differences in the provision of intraday credit. One difference is with respect to unresolved intraday overdrafts. As I mentioned earlier, it is possible for banks to incur overnight overdrafts if they fail to take such action as requesting an overnight loan, although overnight overdrafts are not considered business as usual and carry a penalty rate in the United States, currently set at the primary rate plus 400 basis points. The Bank of Japan does something quite similar. By charging a high penalty on overnight overdrafts, both the Fed and the Bank of Japan discourage overdrafts.

In contrast to the Fed and the Bank of Japan, the ECB and the Bank of England can automatically convert most of the intraday overdrafts into overnight loans from a business-as-usual facility seamlessly, without action on the part of the bank, against the same collateral at the end of the day. That feature creates a greater similarity between intraday credit and overnight credit in those jurisdictions. The relationship between intraday credit and overnight credit is going to be an important one for central banks amid developments in payment systems, including advances in technology and the expansion of payment system operating hours.

Today, I have provided an overview of the Fed's provision of liquidity through the discount window and intraday credit and highlighted some similarities and differences across jurisdictions. In summary, the Fed's discount window and intraday credit facilities have many features that are similar to those found in other central bank facilities. While differences in institutional, legal, and financial system structures across jurisdictions make central bank short-term lending context specific, looking at the experiences of central banks across other jurisdictions is informative, as central banks share similar goals and face similar challenges when it comes to liquidity provision.

The Fed is continually assessing and striving to improve the operational aspects of discount window and intraday credit. The Federal Reserve System has made several important advancements to ensure that liquidity provision meets the needs of the 21st century economy.

For example, Reserve Banks have worked to streamline the use of electronic files when establishing access to the discount window and made technological advancements in the process for requesting a discount window loan. The Federal Reserve System launched a convenient online portal called "Discount Window Direct" for requesting and prepaying discount window loans that is generally accessible to banks 24/7. To improve familiarity with the discount window, Reserve Banks have conducted outreach to banks and made efforts to guide them in using the program.

To complement these efforts, the Board issued a request for information last September seeking input on the operations of the discount window and intraday credit. Any issues identified in the responses to the RFI can help the Fed understand further improvements that may promote efficiency and reduce the burden on banks.

I look forward to hearing insights you may have into central banks' liquidity facilities and how these issues intersect with the topics that will be discussed at this conference. Thank you.

Bostic: Well, thank you, Philip, for your very interesting remarks on liquidity. There's a lot there and we definitely want to make sure we have time to get into all of that. For those of you who are here, we definitely want you to be part of this conversation, so if you have a question or would like to ask a question, please use your Cvent Attendee Hub App for the Financial Markets Conference. You got a link to that in the information that was sent to you beforehand. You can click on this session, and then type in your question.

So, we've got a couple here, but I would also encourage you to vote. We have a system where we will get a gauge of your interest in discussing particular issues, and so we want you to participate in that as well. But while we start gathering those, I thought I would start with a question, and the first one is around the discount window. I know that one issue that came up in response to the Board's request for information was the interoperability between the Federal Home Loan Banks and the Federal Reserve, but can you say a little bit about the issue and what you're thinking about with that?

Jefferson: Okay. Well, first: thank you very much for that question. And yes, that issue of interoperability is very important. But let me take a step back first and indicate clearly that we did understand and appreciate that there could be improvements made in the operation of the discount window. As I mentioned in my remarks, we did introduce an online portal for accepting discount window loans. We've also moved toward using electronic signatures, in terms of executing borrowing documents.

And so, the request for information was another step to try to get feedback from stakeholders on discount window operations, so in that regard—and with reference to your question, the Federal Home Loan Banks and the Fed—we have been looking at issues of interoperability with regards to the pledging of collateral, and that work is in its early stages. I look forward to advancements in that area.

Bostic: And one thing I would just add on this is that I know for our Bank, we've actually tried to strengthen our relationships with the Federal Home Loan Bank in our area so that we actually know each other and can gain comfort in just picking up the phone and calling whenever there are issues—because we don't operate exactly the same but we have a lot of overlap, and my team tells me that it's been very fruitful. So, I'm hopeful that if something comes up, we won't have challenges and we can really work well together.

The question that I see here is from Margaret Tahyar, and it's: "The discount windows did not work for SVB and Signature Bank, while the Federal Home Loan Bank advances did. So, how real are the operational advances? We hear a lot about outreach, but not much on operations. How confident should we be that it'll work the next time?"

Jefferson: Well, I think we should be very confident. Let me be clear that the discount window is very robust; it has functioned well in the past, particularly in stressful situations, and I think it will continue to do that. We are always looking to make improvements. We've learned a lot from the SVB episode, and we've got a lot of good feedback. My expectation is that the operational issues, if any still exist, will be addressed appropriately.

Bostic: And they are being addressed. So, after SVB, I called my team and I said, "Okay, call every bank in the District that should have a relationship, and find out if they're ready." And we found out that not everybody was ready, and so we got on them. And the coverage of people who are ready to use these if necessary is way up. I think that's true—

Jefferson: Absolutely. Systemwide, in terms of banks that have now either pledged collateral to the window and done small-value tests—that has picked up significantly, and I think that's going to put the banks in a much better position to access the discount window, should that be needed in the future.

Bostic: So, the next question is from Bill Nelson: "Is the Fed considering automatic conversion of daylight overdrafts into discount window loans for banks that are eligible for primary credit and have sufficient collateral pledged?"

Jefferson: Well, I don't want to make any pronouncements about what Fed policy is going to be going forward with respect to this very important issue. And so, I appreciate the question but I will say that such issues and questions are under study, but I am not at this point in time prepared to make any pronouncements in that regard.

Bostic: I thought it was interesting that this happens in other countries, and I thought the juxtaposition was an interesting thing for us to consider; and I'm sure that your deliberations will dive into that.

Jefferson: Well, that's one of the reasons why I mentioned the cross-country comparisons in my remarks. But I also noted that these systems—the banking systems, the legal framework for them—are different, and so what we would always want to do is have procedures and operations that are consistent with the American context, as opposed to simply looking at the international context. But it's useful to be able to compare and contrast, and that's sort of what I tried to do in my remarks.

Bostic: And I know you do a lot of international stuff, so from here you're going to talk with some of our international colleagues, and I have a feeling this may be something that you wind up talking a bit about while you're with them.

Jefferson: It certainly could be.

Bostic: The next question is from Claire Noone: "Could you please tell us about how the SRF—Standing Repo Facility—fits into the liquidity provision framework, and what lessons could be taken from other central banks on improving its effectiveness?"

Jefferson: Well, we believe that the Standing Repo Facility is an important backstop for liquidity provision. It's something that was not there during the global financial crisis, and we are always working to make sure that financial institutions know about it, they view it with confidence, and I am hopeful that over time we will be able to make more institutions comfortable with it. So, it's an important backstop for us right now, and something that we're thinking about different design features with respect to the Standing Repo Facility that can be looked at going forward.

Bostic: It's very interesting, this liquidity provision and trying to broaden the toolset that we have offered for financial institutions. I think it's given me a bit more comfort about how much volatility we can expect and what institutions can do. On one level, I'm hopeful we never have to deal with it in a serious, serious way, but also to know that the institutions are aware of it and will draw on it as necessary.

Okay; Andreas Lehnert has a question: "You highlighted the role of the discount window in supporting the payment system. As the payment system evolves—for example, through the introduction of things like FedNow—how do you think the discount window might evolve?"

Jefferson: Well, that's a very good question. We are always thinking about how we can make the discount window easier to use, and certainly with some forms of payment expanding over the weekend, and things of that sort, we have to always be thinking about what might be a natural next step with regards to the discount window and its availability. So, I can assure you that as payment systems evolve, we are thinking about: What does a discount window for the 21st century look like now, and going forward?

So, know that it's a very critical question, and one that we are actively engaged in.

Bostic: It's so funny; at breakfast today, we were talking about how the velocity of transactions is changing, that things are happening much faster, which means that the need for liquidity could become acute—

Jefferson: At any time.

Bostic: At any time, and for relatively small things. And FedNow is like instant payments, which means that you're having that speed in everything, in a way that you didn't before. It's an interesting intellectual challenge, as to how you think about risk and exposure, volatility, security—all those things. I look forward to having that conversation. We have a lot of famous people in our building as well, so it'll be an interesting conversation for sure.

So, Ian Harnett has a question: "Today, US banks only control about a quarter of private sector financial assets, with non-banks controlling the remaining three quarters of those assets. Is it still relevant to focus this central bank liquidity provision via the banking sector? Or rather, should we be doing this directly to non-bank financial institutions as well?"

Jefferson: That's an important policy question, not one that is before us right now, in terms of what our mandates are in terms of the non-bank sector. I agree with the point that a lot of financing has sort of migrated out of the banking sector towards the non-banking financial sector. I guess I'm interpreting the question as to whether or not these other entities should have access to, say, the discount window—and I think that's a legal issue that also would have to be dealt with, and so I have to be noncommittal at this point with respect to anything around that type of expansion.

Bostic: Well, that would be a pretty significant change, and you mentioned the legal issue, I think the jurisdiction of this, the authorities that would be involved, the type of information we'd be seeking out, would be pretty significant. We may want to hold this question for the rest of the conference, actually, because we are talking so much about financial intermediation in transition, the rise of non-bank institutions; I'd be curious to hear from panelists for the rest of the next two days about their views on this, and about what kind of regulatory apparatus should be applied to this growing part of our financial system. Because these are issues that are only going to get larger, I think, as we move forward.

All right; let's see. We've gone through a bunch of these. The next one I have here is actually from—I'm going to use Stasie Kostova: "Is the Federal Reserve considering collateral sharing agreements with the Federal Home Loan Banks to alleviate collateral fragmentation in the industry?"

Jefferson: So, this is what I mean in terms of the work and conversations that are taking place now, and with regards to this issue of interoperability and the prioritizing of collateral agreements. It's something that we've heard a lot of feedback about, and we are working with our colleagues at the Federal Home Loan Banks actively to see what arrangements can be made to make this issue less severe for our depository institutions. It's something that came up very sharply after the SVB episode, and we believe that we can get to a good outcome on this—but it takes work and coordination, and I want to assure you that those conversations are being had, so that we can hopefully make things smoother for all of the stakeholders involved.

Bostic: All right, thank you. The next question is from Sayee Srinivasan: "The Fed has stepped up at various times to provide liquidity support to money market mutual funds, the MMMFs. Will the Fed be openly providing similar support to payment stablecoins, which can be seen as MMMFs on a payment rail?"

Jefferson: Certainly, I'm not going to commit to...the answer to that question cannot be "yes," right? Because that is something that is a larger discussion, that certainly I am not in a position to speak on right now. I don't have much to offer on that point.

Bostic: So, I would fully agree with that, but I would say, just as in the non-bank thing earlier, there's a lot to be sorted out in this space. If you look at just what the Congress is deliberating on, in this current Congress, it's unclear where this is going to go and how this is going to land, and we will follow their direction. This is not actually stuff that we will do unilaterally; it'll be part of a much broader conversation, and I'm glad you'll be in it and you'll get us to a place that is good for the financial system, and for the country.

All right. The next question that I have up is about monetary policy, and it's: "Restrictive monetary policy seems unlikely to stop tariff-related price increases, but it could restrain the labor market—but to what point? If the labor market weakens, what would be the point of restrictive monetary policy, risking more weakening?"

So, I think this is really a question about the balance of risks across our mandate.

Jefferson: Well, certainly this is something that's top of mind, the impact of tariffs, with respect to both sides of our mandate—that being maximum employment and price stability. But one thing that I always like to keep in mind is that there are a lot of potential policy changes that are being considered—some that have been implemented, some that could be—with respect to immigration, with respect to trade, with respect to regulation, and also fiscal policy.

So, when I think about the risks to both sides of our mandate, I have to weigh the totality of all those policies and the net effect of that. And yes, I agree that we're facing risk to both sides of the mandate now, but I think that policy is in a very good place. I believe it is morally restrictive, and given the level of uncertainty that we're facing right now, I believe that it is appropriate that we wait and see how the policies evolve over time, and their impact.

We could have a one-time increase in the price level, and I believe it's important that monetary policy makes sure that any increase in the price level is not converted into a sustained increase in inflation. So, we're going to keep our policy in a position to keep expectations anchored, and we're going to wait and see the eventual impact of the totality of policies.

Bostic: Well, there's just so much uncertainty. I just think about all the dimensions that we face right now, and it's all moving at the same time and in ways that are not always consistent with what the historical experience has been. So, I think it's a big challenge.

One of the things for me is, as I talk to analysts and people in the marketplace, there are very different probabilities attached to the likelihood of significant economic weakness, and that wide range to me says that it is very hard to really assign probabilities on what an action moving forward should look like, because the band is wide.

Jefferson: And so far, the labor market has been very resilient, still doing well. But you're right; the issue is, as we look ahead, how will the labor market be impacted by some of these policies, and I just think it's too early to tell.

Bostic: Well, hopefully we'll find out a resolution to some of this uncertainty sooner rather than later; but we'll see how this goes.

Okay; the next one is around the Fed's operating system: "The FOMC reviewed the Fed's operating system in 2018/2019, when it formally adopted the ample-reserve system—so, how we think about monetary policy execution. Is there any interest in doing another review, given the interest in demand-driven operating systems that we see at the ECB, the Bank of England, and the Reserve Bank of...I think Australia, this is."

Jefferson: Okay. Well, I think it's likely to be the case that we will remain in the ample-reserve regime framework going forward. That has, I believe, served us well, and I am not aware of us engaging in any active conversations about changing that operating framework. So, if I had to forecast with respect to which reserve regime—that's how I'm interpreting this question—that we will continue with going forward—and I don't speak for the FOMC, I'm only speaking for myself—at this point in time, I would expect the ample-reserve regime to be the one that we will maintain going forward.

Bostic: All right; very good. So, we have just about four minutes left, and I've got one more question on my list, so I think we may just hit this right on time—because I don't want my people to be upset with us if we're running long, so we'll just say that.

So, this is about the recent Moody's downgrade: "Are there macro-financial market implications of the downgrade, and how much of a concern is that for the Fed, and how does it enter the conversation?"

So, I'll just say I got asked this question this morning, and my view is that we have to see how this plays out. I don't try to target ratings for the US government, but these things will potentially have implications on prices down the road that we're going to have to pay attention to. I'd love to hear your perspectives on this.

Jefferson: Right; well, what's nice about our mandate is that it always provides clarity in terms of what we should be doing. We don't get to weigh in on the rating agencies; we don't get to weigh in on possible Treasury market reactions to that. The goal is still the same: no matter what conditions we are faced with, we're trying to fulfill our dual mandate—maximum employment and price stability. So, I think that in a time like this, when financial markets are changing a great deal, it's important for us to stay focused on our mission and to do what the Congress has charged us to do.

So, we will put that downgrade in the same perspective that we do with all incoming information, and formulate it in terms of: What are the implications for this in terms of us achieving our mandated goals? So, without commenting on what that downgrade might mean in a political economy context, it doesn't change what our responsibilities are, and that's where I like to keep my focus.

Bostic: And we will have to leave it there. Thank you very much, Philip, for a very interesting and fun session. I hope all of you enjoyed our keynote. But before I go any further, let's thank Philip for a great presentation. Thank you.

Jefferson: Thank you very much.

Bostic: Now, I hope you all enjoyed the keynote, and I'm going to say: we're going to switch the stage, but you do not switch where you are. So, everyone just stay seated. We're going to have what I think will be a really interesting presentation on a very topical subject, and that is the proliferation of private credit. So, I'm going to welcome David Scharfstein of the Harvard Business School, and Scott Frame, who's an old friend from the Atlanta and Dallas Feds, who is now at the Bank Policy Institute, to come up and take these chairs, and we'll be with this right in a moment.