eliminating principal risk from the transaction. a second initiative under way to improve the payment and settlement infrastructure has to do with chips, the clearing house interbank payments system. the new york clearing house, which operates chips, is planning to introduce fundamental changes to its processes for large - value interbank payments that will bring about intraday finality. what happens now is that participants in chips submit payment instructions throughout the day. but actual settlement, performed on a net basis, is deferred and becomes final only at the end of the processing day. in the new arrangement, which the new york clearing house has announced it will put into operation in january, chips participants will continue to submit payment instructions throughout the day. however, through the use of a bilateral and multilateral matching algorithm, the vast majority of payments will be settled and become final over the course of the day. by ensuring that final payment is made promptly, the new procedure will reduce settlement and operational risks and enable participants to manage their risks more effectively. a third major improvement to the u. s financial infrastructure that the federal reserve has already implemented deals with a new net settlement service for fedwire. the net settlement service was implemented in 1999 in response to requests from major us clearing associations. these groups asked the federal reserve to help their members reduce settlement risk while improving operational efficiency. they noted that fedwire itself is not an effective way to settle obligations among the members of a clearing group. we agreed and rolled out a new settlement vehicle. this new service helps clearing houses and related arrangements achieve their goals by offering fedwire - like, immediate and irrevocable finality for entries that have been submitted in a convenient file format by a group ’ s agent. an important, even ground - breaking characteristic of this service is that it allows clearinghouses and other groups to process and clear transactions on their own, although the clearinghouses will continue to achieve final settlement of the underlying obligations on accounts at the federal reserve in central bank funds. by permitting this separation of clearance and settlement, the new service opens opportunities for the private sector to develop clearance solutions while using the most sound and riskfree settlement mechanism available. in addition to these major developments, the securities industry has put the t + 1 project in motion for the settlement of equities and privately issued debt instruments. like the cls bank project and the new chips design, the t + 1 project is an important effort not only to eliminate significant settlement and pre - settlement risks from the payment and

comments and questions. 5 / 7 bis central bankers'speeches 1 i would like to thank john clark, james egelhof, and deborah leonard, for their assistance in the preparation of these remarks, adam biesenbach for his assistance with the data, and colleagues in the federal reserve system for their insightful comments and suggestions. 2 the fomc reaffirmed this policy in its november 1, 2017 statement and implementation note. 6 / 7 bis central bankers'speeches 3 potter, gradual and predictable : reducing the size of the federal reserve ’ s balance sheet, october 11, 2017. 4 see potter, implementing policy with the balance sheet, november 6, 2017, for further discussion of lessons from experience with balance sheet policy. 5 the maturity structure of the balance sheet was only loosely incorporated into the purchase plan. purchases of treasury securities were targeted at maturity sectors ; within each sector, specific issues were selected for purchase using a relative - value approach based on a spline fitted to market prices. sack, implementing the federal reserve ’ s asset purchase program, february 9, 2011. treasury securities acquired through reinvestment are purchased in proportion to issuance. agency mbs purchases are distributed across instruments roughly in proportion to anticipated gross issuance of those securities at the time. potter, the implementation of current asset purchases, march 27, 2013. 6 early fomc discussions of balance sheet normalization, then referred to as an “ exit strategy, ” were predicated on an intention to return to, as put in the january 28, 2009, meeting transcript, “ a more normal framework for conducting monetary policy, ” which meant a return to an asset and liability structure closely resembling that which prevailed before the financial crisis. normalization - related matters were discussed in the minutes to most of the fomc ’ s 2009 meetings. in a january 2009 speech, the crisis and the policy response, chairman bernanke provided extensive detail on the eventual normalization strategy, as envisaged at that time, including his expectation that the balance sheet would be reduced “ to the extent necessary at the appropriate time. ” 7 see potter, money markets at a crossroads : policy implementation at a time of structural change, april 5, 2017, for an assessment of the efficacy of these tools. 8 the policy normalization principles and plans indicates that the committee did not anticipate selling agency mortgage - backed securities as part of the normalization process, although limited sales might be warranted in the longer run to