it would be a development to be truly excited about. when the fomc begins to raise its federal funds rate target, this would indicate that the u. s. economy is finally getting healthier, and that the committee believes it is on a sustainable track to achieving its dual mandate objectives of maximum employment and price stability. that would be very good news, even if it were to cause a bump or two in financial markets. so, when the appropriate time comes, how is the process of monetary policy normalization likely to unfold? in this regard, the revised policy normalization principles and plans that the fomc released following the september fomc meeting are informative. 4 in particular, the committee will begin to normalize monetary policy by first raising its target range for the federal funds rate and short - term interest rates will be the primary tool used for tightening monetary policy. after lift - off looks sustainable and the federal funds rate is somewhat above the zero lower bound, the committee will cease to reinvest those funds generated by maturing treasury securities and prepayments of agency mbs securities. the committee see primary dealer surveys and pilot survey of market participants. see policy normalization principles and plans. bis central bankers ’ speeches anticipates that the balance sheet will gradually normalize passively as these assets run off, not actively via asset sales. the effective federal funds rate will be pushed into a higher target range by raising the interest rate paid on excess reserves ( ioer ). the overnight reverse repo repurchase ( on rrp ) facility will play a secondary role, in the sense that it will be used “ only to the extent necessary ” to help put a floor under the federal funds rate, and it will be phased out when it is no longer needed. with respect to “ how fast ” the normalization process will proceed, that depends on two factors – how the economy evolves, and how financial market conditions respond to movements in the federal funds rate target. financial market conditions mainly include, but are not necessarily limited to, the level of short - and long - term interest rates, credit spreads and availability, equity prices and the foreign exchange value of the dollar. when the fomc adjusts its short - term federal funds rate target, this does not directly influence the economy since little economic activity is linked to the federal funds rate. instead, monetary policy affects the economy as the current change in short - term interest rates and expectations about future monetary

, which new firms will enter the market and what innovations will come about. banks need to get to grips with these fundamental uncertainties – and do a good job of managing their credit risk accordingly. at the same time, competitive pressure on banks is increasing. around one - quarter of loans in the banking union were granted by non - banks recently – in 2008 that figure was 15 %. [ 11 ] in germany, half of financial assets are held by banks – in 2008 they held 70 %. [ 12 ] in addition, new technologies are making it possible to dismantle banks ’ value chain. incumbent banks running outdated it ( informationstechnologie ) systems may be at a technological disadvantage compared with new providers of digital services. surveys show that banks have very different strategies for rising to the challenges presented by digitalisation. digitalisation can also induce changes in customer behaviour. more than 40 % of bank funding in germany comes from customer deposits. [ 14 ] during the period of low interest rates, the structure of private deposits underwent a strong shift – the share of sight deposits accessible at short notice has risen from 30 % in 2008 to just over 60 % in april 2023. [ 15 ] until now, sight deposits have been considered a stable form of financing with a relatively low interest rate sensitivity. online banking and digitalisation could, however, change the behaviour of customers and enable faster withdrawals of deposits. at the us ( united states ) banks hit by the turmoil in march, it was mainly uninsured deposits that were pulled out especially swiftly. [ 16 ] many of these deposits were heavily concentrated in the technology sector. [ 17 ] the funding situation at german banks is different ; institutional protection schemes and voluntary deposit insurance provide an additional layer of protection for depositors. what is more, deposits with german banks are not so highly concentrated. and even banks with a higher share of uninsured deposits hold central bank balances or sight deposits with other banks enabling them to service large - scale deposit outflows. this afternoon, karlheinz walch will discuss the takeaways for supervisors from the episodes of stress in the united states and the role of banks ’ risk management. banks need to adjust their business models in response to these changes in the competitive environment. can deposits continue to be seen as a relatively stable and reliable source of funding? how many branches are needed? from which locations can back - office functions be provided? these are all important strategic decisions that need to be made by