Given the importance of achieving control of interest rates, it will be important to be ready to vary the nature of our operations if either effect becomes problematic, for example by: running more frequent OMOs; varying the terms of those OMOs; or amending our standing facilities. We take some comfort from our discussions with banks that their demand for reserves within our framework should keep us on the relatively flat part of the demand for reserves curve, limiting overnight rate volatility. Nevertheless we will continue to deepen our understanding of the demand curve and its drivers through our own analysis, and through further engagement with the market. A second challenge is to ensure that the new system, when in place, works for all market participants. The range and number of participants may well increase over time, and market structures may need to evolve to support the effective transfer of reserves through the system. So we will prioritise work on OMO design to ensure that SMF participants of all types, sizes and sophistication have ready access to reserves. In doing so, we will need to take care not to impede developments in repo and other markets unduly. Conclusions The Bank’s balance sheet will not be returning to its pre-crisis form, even after QT. That reflects the role it needs to play in delivering the Bank’s monetary policy and financial stability objectives in a new environment.
Table 1: Current estimate of the UK PMRR based on feedback to the Discussion Paper Estimate £ PMRR base  120 – 160  PMRR buffer  30 – 90  TOTAL PMRR  150 - 250  I should stress that there is no mechanical link between this figure and the quantity of gilts that the MPC will need to sell during QT: it does not for example mean that gilt sales must stop when reserves levels hit the PMRR. As I will come on to describe, the whole point of the balance sheet framework that we are proposing is that it will allow the size of the balance sheet to be determined independently from the quantity and composition of QE and QT. Adding back the current level of banknotes and other non-reserves liabilities to the PMRR, and assuming nothing else changes, suggests that a steady-state balance sheet after QT of £ (12-18% of GDP) would be needed to deliver the Bank’s monetary policy and financial stability policy objectives. That’s materially higher than pre-crisis levels. But it’s roughly half where we are today (Chart 10), and narrower than we’ve previously indicated, reflecting the more detailed information available from the Discussion Paper feedback.18 As one cross-check, the required reduction in reserves to get to the PMRR is proportionally similar to that estimated for the United States by the Federal Reserve19. 16  https://www.federalreserve.gov/data/sfos/files/senior-financial-officer-survey-201809.pdf and https://www.federalreserve.gov/data/sfos/files/senior-financial-officer-survey-201902.pdf 17 No attempt is made to estimate any potential future rate of return effect.