The size of the Fed’s balance sheet has reached 20 percent of GDP, a record high. Although monetary policy has supported economic activity, as expected it has not been able to generate on its own a firm and sustained recovery.
So how did our financial system contribute to coping with the current Covid-19 shock? Partially as a result of past regulatory efforts, the banking sector has done relatively well so far. It helps that this shock did not originate from the financial sector itself, but is strictly exogenous.