Indeed, Congress passed the Federal Reserve Act in 1913 to provide the nation with a safer and more stable monetary and financial system. Thus, the focus of this conference--understanding systemic risk--is not new, though some of the names have changed. At the beginning of the twentieth century, banks were virtually the only financial intermediary available.
Periodically, these highly leveraged institutions lost the confidence of depositors, fell into crisis, and reduced their lending to creditworthy borrowers, thereby accentuating economic downturns. The tools that were developed to prevent and to manage financial crises-lender-of-last-resort facilities, supervision and regulation aimed at bank safety and soundness, deposit insurance, and the provision of payment system services--were geared toward a bank-denominated system.