And that they represent only a fifth or less of the credit markets in the U.S. And yet as I speak, depository institutions, including foreign banks doing business in the United States, have $ trillion in excess reserves on the books of the 12 Federal Reserve Banks. So one would be hard pressed to say that ending our asset purchases, which the depository institutions from which we buy them deposit back with us as excess reserves, would deny the economy needed liquidity. “Normalizing” policy The focus of our discussions now is when and how to “normalize” monetary policy. Given that we work directly with only 20 percent or less of the highly developed U.S. credit intermediation system, this becomes a complicated matter. It raises questions, for example, about whether we should focus on the federal funds rate, which has been our traditional fulcrum, or some other measure, such as the rate we pay on excess reserves or that we pay on overnight reverse repos or some mix thereof. You can expect to hear more about this as  BIS central bankers’ speeches  3  time passes. Today, I am going to focus on another aspect of “normalization,” and that is: Once we have wound down QE3, when are we likely to raise the short-term rate that anchors the yield curve? In the parlance of the trade, market operators and bankers alike are seeking “forward guidance” about our intentions.
You might have noted that Janet Yellen’s speech of May 1 to the Independent Community Bankers was titled “Tailored Supervision of Community Banks.” The Federal Reserve banks take this charge seriously. This is no idle claim. Just looking at the Eleventh District, we are increasingly being petitioned by banks for membership in the Federal Reserve System. The number of state member banks in the Dallas Fed district increased by 8 percent in 2012, by 19 percent in 2013, and we have already increased membership an annualized 26 percent in the first three months of 2014. So I would just say this to those of you who are madder than (bleep!) about what Congress and the regulators have wrought: The Federal Reserve knows what community and regional banks do for their communities. We appreciate that you are the backbone for the homeowners, small businesses, service clubs and school sports teams and scouts and churches and myriad other activities that make for better communities. We want you not only to endure, but to succeed and grow. And we want to make sure you play on an even playing field with those who have legions of white-shoe lawyers and K Street lobbyists you couldn’t dream of affording. I wanted to just say that at the outset. 2  BIS central bankers’ speeches  Monetary policy going forward: de-spiking the punch bowl 10 ounces at a time Now, if you will indulge me, I want to speak of the direction of monetary policy from here onward.