Brian P Sack: The SOMA portfolio at $ trillion Remarks by Mr Brian P Sack, Executive Vice President of the Federal Reserve Bank of New York, before the Money Marketeers of New York University, New York, 20 July 2011. *  *  *  Thank you for inviting me here tonight to give these remarks. These events organized by the Money Marketeers provide an excellent venue to talk about the Federal Reserve’s involvement in financial markets, given the focus and expertise of your group. As you know, the Federal Reserve recently completed its second round of large-scale asset purchases, known inside the Fed as LSAP2 and to everyone else in the world as QE2. With the program now in the books, I thought it would be a good time to look back and assess the experience with LSAP2. Specifically, I will discuss the effectiveness of the program relative to its stated objectives, and I will describe some the operational challenges that we faced in implementing it. Lastly, I will touch on several issues related to the potential evolution of the Federal Reserve’s balance sheet going forward. As always, my comments do not necessarily reflect the views of the Federal Open Market Committee (FOMC) or any other members of the Federal Reserve System. LSAP2 and the Federal Reserve’s balance sheet Let me start with a few facts.
On the contrary, one of the most important tasks with regard to the financial system is to facilitate risk-taking; to manage and redistribute financial risks. Methods for this have developed at an incredible rate over the past decade. The new possibilities for risk management have strongly contributed to increasing the efficiency of the financial sector and thereby the economy as a whole. However, it is important that the risks are managed carefully and that they are reasonable in relation to the capital allocated to cover them. They must therefore be clear and transparent to all involved. In this respect, the financial institutions and society as a whole have no fundamentally difference of interests. No one wishes to be surprised by risks they knew nothing about. The Riksbank also works on financial risk issues in many international contexts, in the Basel Committee, the IMF and on committees within the EU and ECB. As the financial markets to a large degree operate across national borders, it is often necessary to establish joint regulations and principles at international level. Throughout, the important issue is to weigh stability concerns against efficiency aspects, to find regulations that make the risks transparent and limit them in relation to the available capital. This should also be achieved without excessively encroaching upon the efficiency and development of the markets. My overall theme today is how the Riksbank views developments in the risk management field from the perspective of financial stability and efficiency.