The ongoing tensions in financial markets The international banking system has been negatively affected by the volatility in financial markets, both directly through losses on their holdings of US sub prime assets, and indirectly through holdings of investments exposed to US sub prime losses as well as credit commitments to related conduits or special purpose vehicles.
I would formulate that in the following rule: The balance sheet should be as large as necessary to give monetary policy sufficient power to ensure price stability and as lean as possible so that, in pursuit of its goal, it does not overly impede market activity. From my point of view, therefore, the pre-crisis framework represents a normative orientation in the normalisation process.