board of governors of the federal reserve system, statement on longer - run goals and monetary policy strategy, adopted effective january 24, 2012 ; as reaffirmed effective january 31, 2023. 4 john c. williams, a steady anchor in a stormy sea, remarks at snb - frb - bis high - level conference on global risk, uncertainty, and volatility, zurich, switzerland, november 9, 2022. 5 federal reserve bank of new york, short - term inflation expectations decline ; perceived and expected credit conditions mostly unchanged, may 8, 2023. 6 federal reserve bank of new york, global supply chain pressure index. 7 board of governors of the federal reserve system, federal reserve issues fomc statement, may 3, 2023. 8 board of governors of the federal reserve system, plans for reducing the size of the federal reserve's balance sheet, may 4, 2022. by continuing to use our site, you agree to our terms of use and privacy statement. you can learn more about how we use cookies by reviewing our privacy statement.

s reaction to the global financial crisis centred on a risk - averse philosophy and we responded to the deterioration in liquidity by tightening investment guidelines to reduce credit risk by limiting counterparty exposures. when a second wave of the crisis emerged in europe through potential sovereign defaults, the bank decided to rebalance its portfolios in order to manage exposures to affected peripheral euro area countries. foreign exchange reserves make up a significant component of total assets of central bank balance sheets. due to this concentration, central banks are subject to stringent reporting requirements from the general public, and more specifically, governments and shareholders. to this end, central banks have been developing sound governance structures, improving accountability through more transparency and introducing a culture of higher risk awareness across all their operational activities. efficient management of foreign exchange reserves has become vital for maintaining sound perceptions of central bank credibility. undoubtedly, a jukka pihlman and han van der hoorn ( 2010 ), procyclicality in central bank reserve management : evidence from the crisis, imf working paper bis central bankers ’ speeches loss of reputation through bad governance could undermine the ability of a central bank to perform its primary tasks of ensuring price and financial stability. good governance and sound functional organisational structures are therefore necessary for the efficient management of reserves. in establishing these structures, clear decision - making processes ; appropriate delineation of roles and responsibilities, clear execution guidelines, and accountability through adequately transparent regular reporting, should be well defined, documented, adopted and institutionalised. it goes without saying that there is no one correct way of establishing a governance framework, and that country - and institution - specific circumstance must be taken into account, while not compromising on the principles. borio et al note that there are two dimensions to consider in governance – vertical and horizontal governance. 2 vertical governance ensures that decisions are taken at the right level ( senior executives ), that is, where the strategic direction of the organisation is established. senior management of the institution should carry out the responsibility of oversight on the investment process and management of reserves. horizontal governance ensures that business areas and reporting lines are organised in a way that minimises the potential for conflicts of interest. the senior governing body needs to provide overall strategic direction through an investment management policy, which encapsulates the risk tolerance for the institution, while an investment committee should be responsible for the tactical position and for establishing the investment guidelines, and whereas day - to - day trading activities and taking active positions should be the