The eventual level of demand for reserves is less certain but is highly likely to exceed pre-crisis levels when reserve balances averaged only about $ billion. Reserves are the ultimate “safe asset,” and demand for safe assets has increased substantially over time because of long-run trends, including regulatory requirements.
The crises have made it very clear at least that international, highly interconnected financial markets require a stronger institutional framework than what we have had in recent years. The authorities need proper tools to deal with ailing banks operating in integrated crossborder markets. The creation of these tools has taken major steps forward since.