Federal Reserve's Logan: The balance sheet can be reduced by changing regulatory rules

ME News, on April 2 (UTC+8), Dallas Fed President Logan on Thursday outlined the path and options for the Federal Reserve to reduce the size of its balance sheet, while also noting that the current system is operating well and will benefit overall financial stability. Logan said the Fed’s current framework for managing financial liquidity is designed to provide a “ample” level of reserves, and that this framework is “efficient and effective.” However, under the existing framework there are still multiple ways to help shrink the Fed’s holdings, and many of these measures involve rules for how financial institutions manage cash reserves. Recent research both inside and outside the Fed has suggested that, by adjusting regulation and pushing banks to hold lower reserve levels, the Fed could further reduce the balance sheet under the current framework. Logan said she agrees, saying the Fed is currently working to make reserve management “more efficient” during periods of stress. She also said that some liquidity rules, while increasing reserves, do not improve safety because banks are unwilling to use those reserve funds during a crisis. “This is the inefficient use of the Fed’s balance sheet, and we can completely avoid this. ” (Jinshi) (Source: ODAILY)