paid on excess reserves ( ioer ) held by depository institutions as its primary tool for keeping the federal funds rate in its target range. it supplements this tool by offering overnight reverse repos ( on rrps ) at a specified offering rate to a broad set of counterparties, including eligible money market funds, government - sponsored enterprises, primary dealers, and banks. 5 together, ioer and on rrps set a floor on rates, beneath which bank and nonbank financial institutions with access to these facilities should be unwilling to lend funds. 6 this framework has been working very well. since december 16, 2015, when the fomc began the process of normalizing the stance of monetary policy, it has raised its federal funds target range four times to a current range of 1 to 1¼ percent. the effective federal funds rate ( effr ) has been within the fomc ’ s prevailing target range on all but one day, and changes in the federal funds rate continue to transmit in a predictable and effective way to other money market rates. 7 balance sheet normalization commences … with normalization of the level of the federal funds rate well underway and interest rate control effectively established, the fomc has now begun the process of normalizing the fed ’ s balance sheet, using a program described this past june in an addendum to its policy normalization principles and plans. 8 specifically, as of last month, the fomc is gradually reducing the fed ’ s securities holdings by decreasing its reinvestment of principal payments received from those securities, with payments being reinvested only to the extent that they exceed gradually rising caps. 9 this process for reducing the balance sheet will run in the background, while changes in the target range for the federal funds rate are the fomc ’ s primary means of adjusting the stance of monetary policy. however, the fomc said it would be prepared to resume reinvestments if a “ material deterioration in the economic outlook were to warrant a sizable reduction in the committee ’ s target for the federal funds rate, ” and it would be prepared to use its “ full range of tools, including altering the size and composition of its balance sheet, if future economic conditions were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal fund rate. ” these conditions help identify the types of circumstances that might lead to some adjustments in the balance sheet normalization process, although chair yellen has noted

##s allow the banking system to absorb higher losses and stabilize lending during periods of stress. yet, there is no doubt that many challenges still lie ahead of us. regarding financial stability, the following three issues in particular will be important after the dust will have settled : we need to monitor vulnerabilities in the financial system and potential spillovers of financial stability risks. we have to analyse the medium - term implications of crisis - related support measures on financial stability – and the potential effects of a phasing - out of these measures. it will be important to deal with a faster pace of structural change arising from longer - term trends such as digitalization and climate change, affecting both the real economy and the financial 1 / 4 bis central bankers'speeches system. taking an international perspective and sharing data can help answering financial stability - related questions. let me give three examples. 1 monitor vulnerabilities in the financial system risks to the financial system can arise if negative shocks transmit across borders or sectors. vulnerabilities in terms of an overvaluation of assets or an underestimation of credit risks can cause substantial losses for banks and other financial intermediaries if risks materialize. to assess financial stability, it is thus crucial to monitor the build - up of vulnerabilities in the financial system and its exposure to domestic and foreign shocks. global banks can be an important channel of shock transmission. yet, information on banks ’ international activities contained in confidential datasets cannot easily be shared across countries. to close this gap, the international banking research network has initiated common research protocols applied to country - specific micro data that allow to share and compare analytical results rather than datasets ( buch and goldberg 2020 ). 1 the network has analysed the exposure of banks to liquidity shocks, the impact of monetary and macroprudential policies on shock transmission, and the role of banks ’ complexity for risks. one key lesson of these studies is that heterogeneity matters : both bank - specific and country - specific factors shape banks ’ lending response and risks. in addition, central banks are increasingly making these data available to external researchers. inexda ( the international network for exchanging experience on statistical handling of granular data ) is an international cooperative project of central banks, ecb, eurostat and other international organizations and national statistical institutes, with support of the bis. the overall aim is to promote this type of data sharing as it aims to foster the accessibility