In the past three years, the Fed has bought over $ trillion of securities issued or backed by the government. The Fed has funded that purchase by tripling the amount of deposits held by banks with the Fed – what are called bank reserves. The standard reasoning is that this kind of reserve creation is inflationary.
But they should do so in an orderly fashion. And thanks to the second pillar of the banking union, the Single Resolution Mechanism, we are now better equipped to ensure this. Having briefly looked back, let me now look to the future. I would like to stress two points.