And today, the credit extended to AIG by the New York Fed remains fully secured. Likewise, the Federal Reserve’s loan to Maiden Lane LLC, which facilitated the Bear Stearns rescue, was and is fully secured. The security is important because it is the taxpayer’s  6  Ben S. Bernanke, Chairman, Board of Governors of the Federal Reserve System, Federal Reserve Policies to Ease Credit and Their Implications for the Fed's Balance Sheet, National Press Club Luncheon, National Press Club, Washington, D.C., February 18, 2009 (emphasis added). 7  See EESA, §102(c)(4), “Adjustment to purchase authority” (“The purchase authority limit in section 115 shall be reduced by an amount equal to the difference between the total of the outstanding guaranteed obligations and the balance in the Troubled Assets Insurance Financing Fund.”)  BIS Review 112/2010  5  protection in the event of a default. There is no similar protection to the issuer of a naked guarantee; if the obligor of the guaranteed obligation fails to perform, the guarantor is liable. On Sunday, September 14, with an acquisition of Lehman no longer possible, a working group of market participants focused on the best way to mitigate the effects of a Lehman bankruptcy. They concluded that a contingency plan developed by the SEC, the Treasury, and the New York Fed was the best option. Under this plan, Lehman’s parent would file a Chapter 11 petition, but the broker-dealer subsidiary would continue to operate.
At the same time, our expectation for a moderate recovery in 2015 and 2016 remains in place. Demand should be supported by a number of factors. Among them are our monetary policy measures and progress made in fiscal consolidation and structural reforms in some countries. At the same time, high unemployment, sizeable unutilised capacity, and the still ongoing and necessary balance sheet adjustments are likely to dampen the recovery. Risks to the economic outlook continue to be on the downside. In particular, the weakening in the euro area’s growth momentum, alongside heightened geopolitical risks, could dampen confidence and, in particular, private investment. In addition, insufficient progress in structural reforms in euro area countries constitutes a key downward risk to the economic outlook. Inflation in the euro area remains very low. In October, it stood at 0.4%. We expect it to remain at around current low levels over the coming months, before increasing gradually during 2015 and 2016. Looking forward, we closely monitor risks to price developments. The latest monetary data point to subdued underlying growth in broad money. Its annual growth rate has increased moderately over recent months. It appears that the turning point in credit growth is now behind us, and credit growth rates, while remaining negative, are gradually improving. Monetary policy and financial fragmentation Let me turn to financial fragmentation, the first topic you suggested for today’s hearing.