It is the possibility that poor managerial decisions by one bank will then spill over to other banks and eventually to the public at large that provides the rationale for supervision and regulation. That possibility is also a key factor driving the Federal Reserve’s need to remain a bank supervisor.
Hence, it is time to take a decision now on scaling back our bond purchases at the beginning of next year. And this point leads to a second challenge. We need to think about how to bring our unconventional measures to an end. We need to look ahead and discuss what the exit might look like.