reflecting the fact that reserves will be in somewhat scarce, rather than ample, supply. as a one - off shift, this is unlikely to be of great significance to the setting of monetary policy. - market rates may be slightly more variable too, particularly initially as banks adjust to the new system and learn to identify and bid for the amount of reserves they need. given the importance of achieving control of interest rates, it will be important to be ready to vary the nature of our operations if either effect becomes problematic, for example by : running more frequent omos ; varying the terms of those omos ; or amending our standing facilities. we take some comfort from our discussions with banks that their demand for reserves within our framework should keep us on the relatively flat part of the demand for reserves curve, limiting overnight rate volatility. nevertheless we will continue to deepen our understanding of the demand curve and its drivers through our own analysis, and through further engagement with the market. a second challenge is to ensure that the new system, when in place, works for all market participants. the range and number of participants may well increase over time, and market structures may need to evolve to support the effective transfer of reserves through the system. so we will prioritise work on omo design to ensure that smf participants of all types, sizes and sophistication have ready access to reserves. in doing so, we will need to take care not to impede developments in repo and other markets unduly. conclusions the bank ’ s balance sheet will not be returning to its pre - crisis form, even after qt. that reflects the role it needs to play in delivering the bank ’ s monetary policy and financial stability objectives in a new environment. but the balance sheet will likely shrink materially as the apf is unwound, and our best current estimate of the level of reserves under our proposed framework is in the range £150 - 250bn. as i mentioned earlier, this all speeches are available online at www. bankofengland. co. uk / publications / pages / speeches / default. aspx number gives no indication about the extent of qe sales, because our proposed framework allows that to be determined independently from the question of our medium term balance sheet size. the discussion paper we issued in august last year was intended to stimulate debate – and from that debate improve our understanding of how the bank of england ’ s balance sheet should be managed in the future.

to revive the mortgage - bond market, and the securitisation markets more generally, given their potential significance for the financing of households and firms. that eagerness is hardly surprising given the likely strain on the western world ’ s banking system if, over the coming few years, it had to reintermediate flows of credit that had previously gone through the abs markets. some have suggested that asset - backed - securities are yet another form of shadow banking. at one level, this seems obvious. take northern rock. when it ran out of money, the authorised bank had a balance sheet of around £50bn, virtually all mortgages. the same management team was running the “ granite ” securitisation vehicle ; also with a balance sheet of about £50bn, and also all mortgages. granite held surplus liquidity with its sister bank, which was not immaterial to northern rock ’ s funding. when the rmbs market closed and granite could not continue to expand, the management team had a backlog of mortgages that the bank was temporarily warehousing but was likely to be unable to finance permanently. that undermined confidence in the bank itself. and if the bank had been downgraded, granite might have had to pull its funding. so they were very inter - twined. for accounting purposes, granite had to be consolidated. for regulatory capital purposes, granite was largely off - balance sheet. the basel supervisors committee is now reviewing its capital rules on securitisation. but another basic principle may commend itself ; we should not allow one management team to run two apparently separate and significant vehicles in a completely joined up way – one a de jure bank, the other a de facto bank – when the funding and risk interlinkages are so strong. some commentators have argued that the extent to which the securitisation market has the economic characteristics of banking goes deeper than that. 10 this account goes broadly as follows. the lehmans crisis and its aftermath had at its core a run on repo financing of holdings of, amongst other things, rmbs and other abs. the banking system had originated assets and issued them into capital markets via abs. but the same banking industry financed investors ’ purchase and holding of those abs ; and then financed themselves via short - term reverse - repo of those assets. in other words, across the system there was too great an element of banks ( and dealers ) having shed credit portfolios only so long as