This condition captures expectations for the demand for these liabilities in normal times. 27 9 / 10  BIS central bankers' speeches  27 My colleague, Lorie Logan, illustrated this variability in “Implementing Monetary Policy: Perspective from the  Open Market Trading Desk,” remarks before the Money Marketeers of New York University, New York City, May 18, 2017. 28 See Morten Bech, Antoine Martin, and Jamie McAndrews, “Settlement Liquidity and Monetary Policy  Implementation—Lessons from the Financial Crisis,” Federal Reserve Bank of New York Economic Policy Review 18, no. 1, March 2012. The authors find that the increased amount of reserves in the U.S. banking system during and since the crisis resulted in a substantial decrease in daylight overdrafts extended by the Federal Reserve and significantly earlier settlement of payments on Fedwire, the Federal Reserve’s large-value payment system. The reduction in overdrafts lowered the Federal Reserve’s credit risk while earlier settlements suggested significant efficiency gains and diminished operational risks—outcomes that support the objectives of changes to the Federal Reserve’s Payment System Risk policy in 2008. Of course, there are other approaches to providing intraday liquidity, such as collateralized overdrafts. 29 Central banks exhibit a strong preference for the safety, confidential and reliability of accounts with fellow central  banks, discussed further in my “Keynote Remarks for the Commemoration of the Centennial of the Federal Reserve’s U.S. Dollar Account Services to the Global Official Sector,” December 20, 2017. 30 A list of reverse repo counterparties can be found here.

As shown in Figure 4, an increased supply of bills issued by the U.S. Treasury in late 2017 was accompanied by a tightening of the spread between rates on 3-month T-bills and overnight indexed swaps (OIS)—a spread between two risk-free instruments that can be thought as reflecting the premium associated with bills’ money-like characteristics in normal times.22  5 / 10  BIS central bankers' speeches  While this is an area worthy of further research, I personally am not compelled by the notion that the public sector can calibrate its supply of money-like assets at the short-end of the curve to exactly remove any remaining externalities from the private creation of money-like assets. In particular, for the last few years in the U.S., because of the various large-scale asset purchase programs, the provision of overnight money-like assets from the Federal Reserve has likely been in excess of investor demand; however, spreads between rates on money-like assets have remained, and in some cases become more variable and larger. This suggests that other forces are in play. One such force is the adjustment of the financial industry to the new regulatory landscape. It is important that the private sector make this adjustment to better align incentives. The role of the central bank’s provision of money-like assets is to ease and support this adjustment, not substitute for it. This is especially true given that private-sector balance sheets are now less elastic in the short-run with respect to fluctuations in the demand and supply of money-like assets.