financial crisis, and then quickly fell as the crisis passed. bis central bankers ’ speeches corporate bond liquidity risk subsequently increased again in 2012 and early 2013, but is now back down close to its pre - crisis level. ( exhibit 9 ) in sum, there is limited evidence pointing to a reduction in the average levels of liquidity. however, there are reasons to think liquidity risk may have increased, and there are some data to support this conjecture. two cautionary notes are warranted in evaluating the available evidence. first, the treasury market evidence is based on the inter - dealer markets, and we do not have comparable evidence on liquidity conditions in the dealer - to - customer market. second, it is important to note that the fomc ’ s unconventional monetary policy may have affected recent measures of liquidity in ways that could make it more difficult to clearly discern any potential changes. to the extent that this may be the case, then a clearer picture on liquidity conditions may only emerge as monetary policy is normalized. what factors could influence liquidity provision? clearly many factors could affect liquidity provision. on the regulatory side, capital and liquidity requirements are probably the most important factors. dealers have been an important provider of liquidity. higher capital requirements reduce dealers ’ returns on equity for a given level of intermediation activity and margin. at the same time, liquidity requirements increase the cost of holding less liquid assets. to compensate for the higher capital and liquidity requirements, dealers can shrink their activity in lower margin businesses and raise the price for the liquidity services they provide. presumably, both adjustments occur in most markets with the ease of entry, the degree of economies of scale, business model and overall client profitability influencing whether the adjustment occurs more through a resizing of the activity or a change in unit trading margins. for the u. s treasury market, the most important change in regulatory requirements is probably the introduction of the supplementary leverage ratio ( slr ) in the united states. the slr limits how leveraged a dealer balance sheet can be. because in the slr all assets require regulatory capital, the slr is much tougher on low risk assets compared to the riskbased capital measures it complements. of note, the long - standing u. s. tier 1 leverage ratio also requires the same amount of regulatory capital for all assets, but the slr has been more binding given its higher calibration and more expansive coverage of exposures

other issue i get asked about is the normalization of the balance sheet. when we first announced our plans in june 2017, i was poised to expound on them in great detail. 4 but when i raised the topic i was sorely disappointed to be met with glazed eyes and general indifference. sadly, nobody seemed to care! now that ’ s changed, and i ’ m getting more interest on this topic. it ’ s important to remember why the fed took unconventional monetary policy actions in the first place. large - scale asset purchases, forward guidance on the future path of interest rates, and seven years where the federal funds rate hovered close to zero, were all measures necessary for the full recovery from the great recession. 3 / 4 bis central bankers'speeches a decade later and the fomc has slowly but surely been moving monetary policy “ back to normal. ” we ’ ve moved interest rates closer to neutral, scaled back on forward guidance, and are over a year into the process of winding down the balance sheet. 5 our goals throughout the policy normalization process have been twofold. first and foremost, to support a strong, sustainable expansion of the economy. second, to do this in a predictable and transparent way that creates as little disruption as possible. 6 so far, this plan has worked very well, with the economic expansion nearing record duration. but it is important to stress that if circumstances change, i will reassess our choices regarding monetary policy, including the path of balance sheet normalization. data dependence applies to all that we do. and, as always, if the outlook deteriorates in a material way, we stand prepared to deploy all our policy tools as appropriate in support of the economy. conclusion i ’ d like to conclude where i began, with the dual mandate. there ’ s sometimes a view that fed policymakers are fixated on two data points : inflation and employment. and the reason is that ’ s how we ’ re judged by congress at doing our job. but underpinning these is a strong economy, and ultimately that ’ s what we ’ re always using monetary policy to support. so, as the year unfolds i ’ ve got my eyes wide open, looking at the data and listening to experience — whether it ’ s coming from household surveys, market indicators, or from leaders in my district. the economy is strong, the outlook is healthy, and my number one priority is using monetary policy to keep it that way. in short