Those operations could be backed by either narrow or “wider” collateral, which comprises high quality, but less liquid collateral, including private sector securities.10 The LTRs effectively reduced the quantity of lending needed via the routine weekly OMOs. But during the crisis, the demand for liquidity rose significantly, owing to the combination of a reduction in the supply of longer-term interbank finance, and a reduction in the liquidity of various asset-backed securities. The Bank responded by expanding the range of collateral it would accept in its operations in order to provide sufficient sterling liquidity to the UK banking system. As a result, the stock of LTRs rose from £ to £ by early 2009 (the blue area in Chart 2).11 The Bank also widened the ranges around the commercial banks’ targets, so that they could hold additional reserves (within the maintenance period) without penalty. The Bank was concerned that the banks would collectively not increase their targets enough from one maintenance period to the next. Widening the ranges around these targets, permitting a larger liquidity injection at the Bank’s discretion, also addressed that problem. The temporary expansion of LTR lending during the crisis was very successful in its main objective of providing liquidity to the banking system. But it also raised a number of important operational policy questions for the Bank: (i)  It was very difficult to decide exactly how large these lending operations should be.
William C Dudley: Comments on "A Skeptical View of the Impact of the Fed's Balance Sheet" Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the 2018 US Monetary Policy Forum, New York City, 23 February 2018. * * * It is a pleasure to be able to comment on this year’s U.S. Monetary Policy Forum paper. As always, what I have to say here today reflects my own views and not necessarily those of the Federal Open Market Committee (FOMC) or the Federal Reserve System.1 To say that I was interested in this year’s topic is an understatement. The use of the Federal Reserve’s balance sheet has been an important element of U.S. monetary policy over the past decade. The start of the reversal of that expansion—the so-called process of balance sheet normalization—has been a key focus of the FOMC’s monetary policy deliberations over the past year. I am pleased that the start of this process—in contrast to the bond market taper tantrum of 2013—has been non-disruptive. The normalization process is now running in the background, essentially on autopilot, with short-term interest rates serving as the primary tool for adjusting the stance of monetary policy. Let me start with my main point: Although I agree with many of the authors’ findings in this year’s paper, I would take a much less skeptical view of the Federal Reserve’s balance sheet as a tool of monetary policy.