There are good reasons to expect a normalized balance sheet to be considerably smaller than its current size but larger than its pre-crisis level. Most obviously, trend growth in the demand for currency gradually pushes up the size of the balance sheet over time, but there are also other reasons to expect the post-crisis new normal to be larger than pre-crisis levels.
The structural demand for reserves may be considerably larger now than prior to the financial crisis because of a number of changes, including new regulations that favor safe liquid assets and changes in financial institutions’ attitudes toward risk.