Currently, with five members of the Board of Governors and five votes among the Reserve Banks, the balance is split equally. BIS central bankers’ speeches  3  Reserve responded to the financial crisis in two ways. First, it intervened to prevent the failure of several systemically important institutions, including firms that it did not supervise – namely Bear Stearns and AIG. 9 Second, it established a number of special liquidity facilities to ensure that domestic banks, securities dealers, commercial paper issuers, money market mutual funds and foreign banks had sufficient access to dollar liquidity so they could sustain their lending and investment activities, and thereby continue to supply credit to households and businesses. I strongly believe that these interventions were necessary to prevent a systemic collapse of the global financial system. If such a collapse had occurred, I am convinced that the consequences would have been a global depression. If the Federal Reserve hadn’t done everything in its authority to prevent a collapse, we would have been derelict in our duty to the country. Let me be clear: The interventions by the Federal Reserve during the crisis were designed to safeguard the economy, for the benefit of all Americans, while protecting the taxpayer. I am proud of our record on both accounts. In the end, the Federal Reserve’s extraordinary interventions achieved their intended purposes to support economic activity and, incidentally, taxpayers were compensated for the risks undertaken in these interventions. Total profits from these interventions were more than $ billion.
But this is mainly because more monetary policy stimulus has been required during the current economic cycle in order to push the U.S. economy towards the Fed’s dual mandate objectives. I believe that if we had not responded as forcefully, the recovery would have been slower, the unemployment rate would have been higher and there would have been a greater risk of deflation. While it is much too soon to claim success, the U.S. economy today is in a relatively good place compared to most other countries. The economic expansion is in its seventh year and we have made considerable progress relative to our employment and inflation objectives. Also, the tools that we designed to control monetary policy even with a very large balance sheet have been shown to be effective. In December, when we raised our target range for the federal funds rate to 25 to 50 basis points, we also raised the interest rate we pay on bank reserves to 50 basis points and the rate we pay on our overnight reverse repo facility to 25 basis points. Not only have these new tools been effective in moving the federal funds rate up into the middle of its new target range, but the entire complex of money market rates has moved up as well. Also, the fears expressed by some that the Federal Reserve’s very large balance sheet would lead to runaway inflation have proven to be unwarranted.