Damaging the security of the financial system to advance the balance sheet reduction progress is a loss no matter how you count it.

Baal states that loosening liquidity regulations to reduce the Federal Reserve's balance sheet size is a bad idea and could harm the safety of the financial system. He points out that shrinking the balance sheet is not an end goal, and related plans could weaken bank resilience, hinder money market operations, and even increase the Fed's influence in the market, warning that relying on bank liquidity holdings as an alternative to reduction could increase dependence on Fed tools. He emphasizes focusing on the effectiveness of monetary policy rather than the size of the balance sheet.