As to a desirable legislative agenda, Chairman Bernanke has recently discussed the Board's views, 7 and I testified on the subject before the Senate Banking Committee in March. 8 So, as important as this second piece of a post-crisis regulatory agenda is, I will not fully discuss it this afternoon.
A lower level of risk premium decreases the refinancing cost of the existing debt stock thus enhances fiscal sustainability while it decreases the cost of capital which has a beneficial effect on potential output through higher investments. Lower risk premium can lead to exchange rate appreciation and in a competing banking system decreases lending rates.