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

ME News Report, April 2nd (UTC+8), Dallas Fed President Logan outlined the path and options for the Federal Reserve to reduce its balance sheet on Thursday, while noting that the current system is functioning well and benefits overall financial stability. Logan stated that the current system managing financial liquidity aims to provide a “ample” level of reserves, which is “efficient and effective.” However, under the current system, there are multiple ways to help shrink the Fed’s holdings, many of which involve rules for financial institutions managing cash reserves. Recent internal and external research by the Fed indicates that by adjusting regulations to encourage banks to hold lower reserve levels, the Fed can further reduce its balance sheet within the existing framework. Logan agreed, saying that the Fed is working to make reserve management “more efficient” during periods of stress. She also mentioned that some liquidity rules, although increasing reserves, do not enhance safety because banks are reluctant to use these reserves during crises. “This is an inefficient use of the Fed’s balance sheet, and we can completely avoid this situation.” (Jin10) (Source: ODAILY)