, in cases such as detroit and stockton, make the public sector finances unsustainable. at a certain point, the debt service burden clashes with maintaining a sufficient ongoing provision of services to forestall people from voting with their feet. this may occur well before the point that debt service capacity appears to be fully exhausted. in other words, the prioritization of cash flows to debt service may not be sustainable beyond a certain point. while these particular bankruptcy filings have captured a considerable amount bis central bankers ’ speeches of attention, and rightly so, they may foreshadow more widespread problems than what might be implied by current bond ratings. we need to focus our attention today on addressing the underlying issues before any problems grow to the point where bankruptcy becomes the only viable option. so, i am especially pleased to see that your agenda today focuses, in part, on helping cities and states avoid such levels of fiscal stress, where the risks of going past such a tipping point become significant. in summary, state and local governments have enormous financial obligations, as well as critical service delivery responsibilities. managing their liabilities in such a way as to ensure that these vital services continue to be provided, and citizens view that they are getting appropriate value in exchange for their taxes is a daunting challenge. i am happy to see such a distinguished group assembled here at the bank to address this challenge. good luck in your work and i look forward to learning of the results of today ’ s discussions. bis central bankers ’ speeches

reserves. note that the policy tightening in this scenario will still likely be taking place in an environment of large excess reserve balances, and the main workhorse of the tightening cycle will still be the interest paid on reserves. however, the draining tools can be used to best ensure the success of that framework. market conditions : at risk on exit? finally, let me turn to conditions in financial markets and discuss whether there may be vulnerabilities related to the fed ’ s exit from the current monetary policy stance. i think there are two potential areas of concern. the first potential concern is that the exit strategy could simply cause confusion among market participants, prompting volatility in asset prices. as noted earlier, this tightening cycle, when it arrives, will be more complicated than past cycles, as there will be more decision points facing policymakers. with more decision points come more opportunities for the markets to be confused by our actions. the recent changes to the discount rate and the treasury ’ s supplementary financing program balances highlight this concern, as the amount of attention that those actions received was outsized relative to their significance for the economy or for the path of short - term interest rates. the burden is on the fed to mitigate this risk by communicating clearly about its policy intentions and the purpose of any operational moves it might take. in this regard, the forwardlooking policy language that the fomc is currently using in its statement is important. i would argue that this language contains much more direct and valuable information about the likely path of the short - term interest rate target than does any decision about draining reserves. indeed, it will be difficult for market participants to make precise inferences about the timing of increases in the target interest rate from the patterns of reserve draining alone, in part some have discussed whether the draining of excess reserves has effects on the economy beyond the implications for short - term interest rates. in my view, it would be surprising if there were significant effects on the real economy or inflation associated with substituting one short - term, liquid, risk - free asset ( reverse repos or term deposits with the fed ) for another ( reserves ), except for the degree to which that substitution affects the fed ’ s control of overnight interest rates. because the fomc has not specified the path of reserves it intends to achieve before raising interest rates. the second potential concern that some may have is whether the markets have adequately priced in the exit strategy. however, a few considerations should limit