Financial liberalisation has led to the emergence of financial conglomerates, cutting across not only various financial sectors such as banking and insurance, but also a number of countries. Therefore, a contagion means the problems of distant economies can become problems of our own.
Most obviously, during the period when the balance sheet is running down, if the economy encounters adverse shocks, it may be appropriate to commence the reinvestment of principal payments again in order to preserve conventional policy space if the federal funds rate were to drop below some threshold level, perhaps similar to the “well under way” threshold.