1  Kevin Warsh, quoted in the FT, 7.5.17: https://www.ft.com/content/45303028-3280-11e7-bce4-9023f8c0fd2e See for instance https://www.cato.org/blog/strange-official-economics-interest-excess-reserves 3 https://www.thetimes.co.uk/article/we-were-not-asleep-at-the-wheel-bank-of-england-managers-tell-angry-mps-6pc7bnr56lf 4 https://scholar.harvard.edu/stein/publications/federal-reserves-balance-sheet-financial-stability-tool 5 https://www.brookings.edu/blog/ben-bernanke/2016/09/02/should-the-fed-keep-its-balance-sheet-large/ 2  2  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  2  Chart 2: The Bank of England’s balance sheet as a share of GDP  Source: Bank of England, available at: https://www.bankofengland.co.uk/statistics/research-datasets  Where is this all going? At one level the answer to that is simple: for the foreseeable future, the path of the Bank’s balance sheet will be shaped by the decisions of the Monetary Policy Committee (MPC) in pursuit of the inflation target given to it by Government. Whether that involves further expansion of the balance sheet, or a return to less exceptional levels (so-called Quantitative Tightening or ‘QT’), we on the Bank executive need to be ready to implement those decisions. My focus today is squarely on the latter: how we plan to implement monetary policy during QT, and the likely size of our balance sheet in the medium term. Of course, market expectations don’t point to QT starting any time soon. But those views can change rapidly. And experience from the United States and elsewhere suggests that early, clear communication about the target end-state can help stabilise expectations and increase the effectiveness of normalisation when it comes. For that reason, we launched a Discussion Paper6 last year to expose our vision of the medium-term goal to challenge and feedback. We promised to share our findings from that work7 – and that’s what I aim to do today.

18 http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/treasury-committee/bank-of-england-inflationreports-hearings-session-201516/oral/29584.html 19 An April 2019 speech by Lorie Logan, Senior Vice President of the New York Federal Reserve cites an estimate for the US ‘Lowest Comfortable Level of Reserves’ of $ which is around 30% of peak reserves $ By comparison, our PMRR estimate is 30-50% of current UK reserves. See https://www.newyorkfed.org/newsevents/speeches/2019/log190417 for details of the US estimate. 11  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  11  Chart 10: Estimated range for steady-state post-QT balance sheet  Source: Bank of England  At the same time, it is worth underscoring how uncertain this estimate of the PMRR still is. Like all informal survey-based estimates, it is subject to sampling error. It reflects a varied set of responses from firms – many of whom are themselves, by their own admission, genuinely unsure how to calibrate their own future demand after such a long period of abundant supply and low interest rates. And the PMRR will certainly adjust over time in response to changes in external conditions. Factors which might reduce the future PMRR include higher rates of return on alternative assets, or greater access to and confidence in the functioning of short-term money markets. Factors which might increase the future PMRR include greater risk aversion or further expansion in the range of firms with access to reserves accounts.