the remaining vulnerabilities. as mentioned earlier, the final major strand of regulatory reform is to strengthen the core of the financial system and make the system as a whole robust to the failure of a large bank or non - bank financial institution. in this realm, there are several notable initiatives. first, an effort is underway to create robust resolution regimes that allow large systemically important financial institutions to be wound down smoothly in a way that minimizes contagion and the risk of a broader panic or that causes damage to other parts of the financial system. for example, the dodd - frank act gives enhanced resolution powers to the federal deposit insurance corporation ( fdic ) to use to wind down large, complex non - bank financial institutions. if such a firm becomes troubled, the regulators, with concurrence from the u. s. treasury, can avert a bankruptcy filing and instead put the non - bank financial company into resolution. as part of such a resolution process, regulators are working to ensure that systemically important firms have viable recovery plans and that such firms have “ living wills ” that can help guide how such firms can be managed through a resolution situation. second, to reduce the likelihood of disruptive and highly costly failures, regulators around the world are evaluating whether bail - in forms of capital might be used to help recapitalize firms when they would otherwise lose their viability, or, alternatively, to help facilitate the orderly wind - down of a firm. bail - in capital might consist of a well - identified tranche of debt that would convert to equity only if and when a particular set of trigger conditions were met. such triggers might include breaching a certain level of regulatory capital and / or a regulatory determination that without conversion the firm would no longer be viable. one considerable challenge is how to define a set of triggers in a way that is sufficiently transparent and objective so that the bail - in process does not act as a catalyst and precipitate a run on other firms that might appear to have similar characteristics. in principle, however, by helping to recapitalize the firm, bail - in capital could help to forestall the need for a forced, rapid liquidation of assets and this might help to facilitate the orderly wind - down of a large, global firm that otherwise could not otherwise be easily resolved. third, efforts are underway to reduce counterparty risk exposures by requiring that over - thecounter ( otc ) interest rate swaps, credit

fully to economic and financial news. over the coming years, such news could span a wide variety of topics, such as central bank policy in this country and abroad, the ongoing debate over fiscal policy, and the evolution of expectations for the longer - run neutral rate of interest. that said, we do seek to mitigate the risk that our operational actions contribute to unnecessary surprise, disruption, or volatility. there is of course always a risk that events could unfold differently from expectations. in particular, central banks have had little direct experience with the impact of such a reduction in holdings of domestic securities and in reserves. one relevant experience, of course, was the socalled “ taper tantrum, ” in 2013 which showed that markets can have outsized reactions to changes in balance sheet policy even before they happen. more generally, experience with asset purchase programs, both here and abroad, clearly demonstrates that market volatility can ensue from balance sheet policy changes that market participants perceive as surprising, unclear, or rapid, or are not adequately distinguished from short - term interest rate policy intentions. all of this indicates to me that, at policy turning points like these, central banks should carefully and clearly communicate their intentions, provide as much transparency as possible, focus on one tool at a time, and make transitions in policy implementation as slowly as overall macroeconomic policy objectives permit. 4 the rest of my remarks will go as follows. first, i ’ ll provide an in - a - nutshell summary of the structure of the federal reserve ’ s balance sheet. then, i will discuss why it is important that the decline in the balance sheet be gradual and predictable, and explain how the fomc ’ s plan provides this gradualism and predictability. i will then talk briefly about how the federal reserve is ensuring it is prepared for unexpected developments. we will then open things up for questions you may have. the fed ’ s balance sheet, in a nutshell let ’ s begin by reviewing, at a high level, where the fed ’ s balance sheet is today. panel 1 shows a summary of the fed ’ s assets and liabilities, as they are today. substantially all of the $ 4. 5 trillion of assets consist of treasuries and agency mbs. on the other side of the balance sheet, the federal reserve has three main categories of liabilities : $ 2. 6 trillion of bank reserves and other deposits, $ 1. 5 trillion of paper currency,