The FOMC has indicated that the Federal Reserve will, in the longer run, hold no more securities than necessary to implement monetary policy efficiently and effectively – which will require us to reduce the size of our balance sheet substantially. But that statement leaves open the question of when we should begin that process.
The new Basel II-based framework will not only focus on the computation of the appropriate level of capital given a certain level of exposure, but will also underscore the need for more market disclosures by banks on their risk exposures and risk management practices.