The Committee expects that it will be appropriate to reduce the capacity of the ON RRP facility fairly soon after it commences policy firming. I’d like to explore some of these elements in more detail. 1  This measure of reserves includes current balances of RRPs conducted under the Desk’s operational exercise and term deposits. In actuality, balances held in these categories shift the composition of the Federal Reserve’s liabilities away from reserves, although they don’t reduce the total size of the balance sheet. Note that the total quantity of reserves in the banking system is largely a byproduct of Federal Reserve activities (such as asset purchases or lending programs) and the private sector’s demand for other Federal Reserve liabilities (such as currency). Individual bank lending transactions can redistribute reserves, but they do not change the total quantity of them. See Todd Keister and James J. McAndrews, “Why Are Banks Holding So Many Excess Reserves?” Federal Reserve Bank of New York Current Issues 15, no. 8, December 2009. http://www.newyorkfed.org/research/current_issues/ci15–8.pdf. 2  The FOMC’s September 2014 Normalization Principles and Plans and March 2015 meeting minutes are available, respectively, at http://federalreserve.gov/newsevents/press/monetary/20140917c.htm and http://federalreserve.gov/monetarypolicy/fomcminutes20150318.htm. 3  The Committee further specified that it expects to cease or commence phasing out reinvestments after it begins increasing the target range for the federal funds rate; the timing will depend on how economic and financial conditions and the economic outlook evolve.

The growing importance of Islamic finance Indeed, Islamic Finance has grown most significantly in the last decade, posting double- digit rates since 2007, at close to 20%, compared with growth of 4% in the “conventional” financial sector. It has now reached a volume of $ 2 trillion, which is a very significant figure that represents around 1% of total global bank assets. The surge of Islamic Finance is apparent both in Islamic countries and also, in European markets, with the establishment of Islamic banks and the development of the Sukuk market for private and official issuers under some European jurisdictions. The prospects for Islamic finance are also positive, given the extensive scope for the financial inclusion of a population in a number of countries, with very low rates of bank access and usage. The regulatory challenge of Islamic finance The further development of Islamic finance will nonetheless depend on implementing the necessary financial reforms to ensure its integration into the wider financial system. Here, I think that the challenges are twofold: FIRST, in Islamic jurisdictions the challenge is to continue developing the architecture of Islamic finance in areas such as payment systems and supervisory and resolution regimes. In particular, it would seem vital to advance towards the standardisation of Islamic finance regulation, breaking the existing jurisdictional heterogeneity, in order to take advantage of a wider international market. The SECOND challenge refers to the integration of Islamic finance into the wider financial system.