In recent years, it has become even more important because of the increased capacity of financial disturbances to spill over into the real economy. One need look no further than the difficulties currently facing the economies in East Asia to appreciate the consequences of weak financial systems.
As a result, it decreases the supply of longerterm Treasury securities available to the public, putting upward pressure on the prices of those securities and downward pressure on their yields, without affecting the overall size of the Federal Reserve’s balance sheet.