BPI’s Bill Nelson Testifies at House Hearing on Fed Balance Sheet

Washington, D.C. - Bank Policy Institute Chief Economist Bill Nelson will testify today on the Federal Reserve's balance sheet at a hearing of the House Financial Services Committee Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity titled "Striking the Right Balance Sheet."

In his testimony, Nelson will explain how the Fed's balance sheet has expanded significantly over time, how it can shrink and how it compares to other global central banks' approaches.

"There's nothing harder to say than 'I made a mistake,' and nautically there are fewer things harder to do than turn an ocean liner," Nelson said in his testimony. "But new policymakers at the Fed have the chance to take the helm and return the Fed to its proper place in financial markets. The wake of other central banks shows the way."

Three Steps to Shrink. To reduce the size of its balance sheet, Nelson recommended the Fed take three steps:

1. Stop paying an above-market rate for reserves
2. Avoid easily foreseeable repo market volatility
3. Fix liquidity requirements.

Nelson, who joined BPI's predecessor organization in 2016, spent more than two decades at the Federal Reserve, culminating in his role as deputy director of the Monetary Affairs division. Nelson, who holds a Ph.D. in Economics from Yale University, is an adjunct professor at Georgetown University. In 2024, his paper "How the Federal Reserve Got So Huge, and Why and How It Can Shrink" was published by the Southern Economic Journal.

To learn more, read Nelson's written testimony here.

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About Bank Policy Institute

The Bank Policy Institute is a nonpartisan public policy, research and advocacy group that represents universal banks, regional banks and the major foreign banks doing business in the United States. The Institute produces academic research and analysis on regulatory and monetary policy topics, analyzes and comments on proposed regulations, and represents the financial services industry with respect to cybersecurity, fraud, and other information security issues.

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