Second, the Federal Reserve’s balance-sheet expansion does have a consequence for the balance sheet of the banking system. The increase in the amount of excess reserves has to be held by banks. Excess reserves are a risk-free asset that they may not wish to hold. More important, to the extent that the banks worry about their overall leverage ratios, it is possible that a large increase in excess reserves could conceivably diminish the willingness of banks to lend. At present, these balance-sheet issues do not appear to be having a meaningful effect on bank behavior. In fact, the excess reserves serve as a liquidity buffer that many banks find attractive in the current environment. But that does not mean we can ignore this issue. We need to keep this issue in mind as we contemplate how much balance-sheet expansion might be appropriate. Third, the Federal Reserve is taking on some interest-rate risk in terms of its balance sheet. The excess reserves have an overnight maturity. These liabilities are being used to purchase longer-term assets. In principle, if short-term interest rates were to move up very sharply, the  6  BIS Review 94/2009  cost of funding could eventually exceed the return on the Fed’s assets. The bigger our balance sheet, the greater the amount of interest-rate risk we are assuming. We have examined this issue in detail.
The depreciation of the euro has also contributed to easing financing conditions. At its meeting on 3 September 2015, the Governing Council of the ECB expressed its readiness and ability, if required, to allow for more accommodation in its monetary policy stance. To this end, it could – if considered necessary – use the flexibility already embedded in the purchase programme to increase its size and extend its duration or modify its composition. The Spanish economy To conclude, I would like to briefly discuss the Spanish economy and its outlook. During 2015 the Spanish economy has been in what we could call a “virtuous triangle”, by simultaneously meeting three conditions: robust inflation-free growth, job creation and an external surplus. In 2015 we are going to achieve GDP growth of more than 3%, a negative average annual inflation rate, a current account surplus of more than 1 pp of GDP, and growth in employment and social security registrations, prompting expectations of an unemployment rate of less than 20% of the labour force by end-2016. However, the degree of uncertainty in economic projections has widened notably in recent months and the risks of slippage have risen owing to the downturn in the outlook for global growth. However, the Spanish economy is in a position to meet these challenges. The reforms implemented to date promote economic recovery and contribute to increasing Spain’s resilience in the face of exogenous shocks.