the eurosystem was two percentage points. 14. changes in over - the - counter ( otc ) derivatives regulations, leading to requirements for central clearing, and margin requirements for uncleared derivatives, have also driven increased demand for hqla. 15. see also acharya, v. v. et al. ( 2022 ), “ liquidity dependence : why shrinking central bank balance sheets is an uphill task ”, paper presented at the federal reserve bank of kansas city ’ s jackson hole economic symposium, august. 16. for the role of deposits in reserve demand, see lopez - salido, d. and vissing - jorgensen. a. ( 2023 ), “ reserve demand, interest rate control, and quantitative tightening ”, mimeo. 17. see board of governors of the federal reserve system ( 2019 ), “ statement regarding monetary policy implementation and balance sheet normalization ”, 30 january ; and zobel, p. ( 2022 ), “ the ample reserves framework and balance sheet reduction : perspective from the open market desk ”, remarks at the cato institute ’ s 40th annual monetary conference, 8 september. 18. this spread compensates banks for the overhead and balance sheet costs of liquidity storage services but may also include an excess spread reflecting the pricing power that banks enjoy because of their exclusive access to the central bank balance sheet. 19. the federal reserve also has liquidity backstop facilities – the discount window facility and the standing repo facility – which are priced above the market rate to prevent sudden rate spikes arising from demand - supply mismatches for which the chosen buffer may prove to be insufficient. 20. for the role of reserves in contributing to financial stability, see greenwood et al. ( 2016 ), “ the federal reserve ’ s balance sheet as a financial - stability tool ”, prepared for the federal reserve bank of kansas city ’ s 2016 economic policy symposium, jackson hole. 21. schnabel, i. ( 2023 ), “ monetary policy tightening and the green transition ”, speech at the international symposium on central bank independence, sveriges riksbank, stockholm, 10 january. 22. see, for example, cavallo, m. et al. ( 2019 ), “ fiscal implications of the federal reserve's balance sheet normalization ”, international journal of central banking, issue 61, pp. 255 - 306. 23. see article 119 ( 2 ) and article 127 ( 1 ) of

speech back to normal? balance sheet size and interest rate control speech by isabel schnabel, member of the executive board of the ecb, at an event organised by columbia university and sgh macro advisor new york, 27 march 2023 on 1 march, the ecb started quantitative tightening ( qt ) after eight years of balance sheet expansion. at the peak in 2022, the eurosystem held monetary policy assets corresponding to around 56 % of euro area gdp. this was substantial both from a historical perspective and in international comparison ( slide 2, left - hand side ). the first wave of balance sheet expansion was a response to the low - inflation environment prevailing in the aftermath of the euro area sovereign debt crisis. between 2014 and 2016 headline inflation ran persistently below our target of 2 %, averaging just 0. 3 % ( slide 2, right - hand side ). as the key policy rate had already been lowered into negative territory in 2014 and was approaching the effective lower bound, the ecb started employing “ unconventional ” monetary policy tools. it offered banks a series of targeted longer - term refinancing operations ( tltros ) and conducted asset purchases to stimulate economic activity and raise inflation. these operations led to a sharp increase in monetary policy assets and, correspondingly, to a rise in central bank liabilities in the form of excess reserves – that is, reserves held by banks beyond minimum requirements ( slide 3 ). the second wave of balance sheet expansion came with the ecb ’ s response to the pandemic. the launch of the pandemic emergency purchase programme ( pepp ) and adjustments to the third series of tltros resulted in a further large increase of our monetary policy assets. these measures were necessary to protect the euro area economy from falling into a full - blown financial crisis and economic depression. last july, balance sheet growth came to a halt when we ended net asset purchases under the asset purchase programme ( app ). since autumn, the size of the balance sheet has been declining as banks began repaying their outstanding tltro loans. the balance sheet has declined further since the beginning of march, when we stopped fully reinvesting maturing securities bought under the app. further tltro repayments and a gradual run - down of our monetary policy bond portfolio imply that our balance sheet is expected to decline meaningfully over the coming years, thereby reducing excess liquidity. however, the size of our balance sheet will not return to the levels