funds market at rates below the ioer rate, and can arbitrage away any significant price gap that emerges from the activity of non - depository institutions that can buy and sell federal funds, but cannot hold reserves at the fed. thus, through the ioer rate, the federal reserve can effectively control the fed funds rate. indeed, even the opportunity cost of making the loan is similar in both instances. a bank that has excess reserves and decides to extend credit forgoes the chance to earn the ioer on the money lent out. a bank that borrows reserves in the fed funds market in order to extend credit pays the fed funds rate in order to do so. the ioer and fed funds rate are likely to be similar. bis central bankers ’ speeches so we have the means to tighten monetary policy when the time comes, but do we have the will? i think there should be no doubt about this. it is well understood among all the members of the fomc that allowing inflation to gain a foothold is a losing game with large costs and few, if any, benefits. in this regard, some have argued that fed officials might be reluctant to raise short - term rates because such increases would squeeze the net interest margin on the fed ’ s system open market account ( soma ) portfolio. although it is true that a rise in short - term interest rates would reduce the fed ’ s net income from the extraordinary high levels seen in 2009 and 2010, 4 this will not play a significant role in the fed ’ s monetary policy deliberations. fed policy is driven by the objectives set out in the dual mandate, and the net income earned by the fed is the consequence of the policy choices that advance those objectives. the federal reserve ’ s net income statement does not drive or constrain our policy actions. in short, we act as a central bank, not an investment manager. it is also worth pointing out in passing that a failure to raise short - term interest rates at the appropriate moment based on our dual mandate objectives would also be a losing strategy with respect to net income. inflation would climb, bond yields would rise and the fed would ultimately be forced to raise short - term rates more aggressively, or to sell more assets at lower prices to regain control of inflation. this would almost certainly result in larger reductions in net income than a timelier exit from the current stance of monetary policy. so what does this all imply for monetary policy? first, barring a

caroline abel : opening remarks - bank failure simulation workshop opening remarks by ms caroline abel, governor of central bank of seychelles, at the bank failure simulation workshop, victoria, 28 march 2022. * * * deputy governors, mr james hambric and team of facilitators from us treasury ota, participants, good morning to you all. it is with great pleasure that i welcome you this morning as we embark on a week - long journey towards gaining a better understanding and in turn, enhancing our ability to face challenges that can arise as a result of a bank failure. at this juncture, please allow me to extend a special welcome to the workshop facilitators, mr. james hambric and his team from the united states department of the treasury office of technical assistance. since the second half of 2021, the ota team has been instrumental in assisting the central bank of seychelles with reviewing of our bank resolution framework. thus far, work has been progressing on the policy aspects, best practices and legal considerations. the bank failure simulation workshop which begins today will give further impetus to this endeavour. bank failure. a phenomenon, that as authorities, we would prefer not to have to face. yet, the various crises that continue to emerge provide us with many lessons, key of which is the importance of preparedness and having an effective resolution regime in the event that a bank fails. banks are important institutions as they provide services that are critical to the functioning of the economy. these include deposit - taking and lending and the provision of payment services. banks function fundamentally on one simple yet very fragile element, which is the public's trust. as bank users, we all need to trust that our deposits are safe in a bank - that whenever we need to use or withdraw our money, we will be able to do so. if there was even a slight suggestion that we will not be able to access our money tomorrow, the natural impulse would be to withdraw our money at an atm or the bank's tills at the earliest opportunity. the typical maturity structure of banks is such that deposits are short term and they fund loans that are long term. this facet makes it difficult for banks to meet large - scale deposit withdrawals at one go. loss of confidence in one bank can easily spread to loss of confidence in other banks and the wider banking system, leading to bank runs. there is also the risk of contagion that can arise from interbank exposures in the payment system