is important for how we operate together in crisis. the efforts of the basel banking supervisors are particularly important in this context. while their efforts have long emphasized the value of international supervisory cooperation, the improved basel ii framework raises the bar even further, putting the need for supervisory coordination squarely on the table if basel ii is to be implemented effectively for a global bank. conclusion let me conclude by emphasizing the obvious importance of the quality of macroeconomic policy management to the stability of the financial system. it probably is possible for a country with an exceptionally virtuous fiscal and monetary policy framework to experience a systemic financial crisis. but most financial crises involve a shock whose origins lie in the realm of macroeconomic policy error, often magnified by the toxic combination of poorly designed financial deregulation and an overly generous financial safety net. probably the most important contribution policy makers can make to financial stability is to avoid large monetary policy mistakes or sustained fiscal and external imbalances that increase the risk of large macroeconomic shocks, and to try to ensure that policy reacts with sufficient speed and force in the face of those shocks we are unable to avoid.

decrease its reinvestments in an orderly way, with repayments reinvested only to the extent they exceed gradually rising caps. for maturing treasury securities, the fomc anticipates that the monthly cap will be $ 6 billion initially and will increase in steps of $ 6 billion at three - month intervals over 12 months until it reaches $ 30 billion. for repayments of agency mbs, the monthly cap will be $ 4 billion initially and will increase in steps of $ 4 billion at three - month intervals over 12 months until it reaches $ 20 billion. for treasury securities, when the caps are fully phased in, they will generally only be binding during the middle month of each quarter, when there is typically a spike in maturing treasuries in the fed ’ s portfolio. for agency mbs, as long as long - term interest rates are steady or rising, we expect that the fully - phased - in caps will not be binding. however, if long - term interest rates were to fall sharply — provoking a surge in refinancing and mortgage repayments — the caps would likely bind, limiting the amount of agency mbs that would have to be absorbed by the private market. as currently anticipated, once we start the balance sheet normalization program, we expect it to continue in the background until the fomc judges that the fed ’ s securities holdings are no larger than necessary to implement monetary policy efficiently and effectively. adjustments to the target range of the federal funds rate will remain the primary tool of monetary policy. however, if economic circumstances were to change during the normalization process in a way that would warrant a sizable reduction in the target range for the federal funds rate, the fomc would be prepared to resume reinvestment. the program has been designed to be implemented gradually and predictably so that market participants and the u. s. treasury can anticipate when and at what pace the portfolio is likely to run off over the course of normalization. this should keep expectations more stable and reduce the risk that a sharp shift in expectations could generate undesirably large movements in interest rates and asset prices. as i see it, a few questions about this program remain and are worth addressing. the first question is why do this at all. after all, the fed has had a large balance sheet for many years now. in my view, the balance sheet expansion was undertaken in response to an extraordinary set of circumstances — a deep recession