BlockBeats News, May 15th, Federal Reserve Governor Barr said that shrinking the balance sheet by relaxing liquidity rules is not a good idea, as reducing liquidity requirements will only increase financial stability risks. Shrinking the balance sheet itself is a misguided goal, and many proposed solutions to achieve this goal would weaken bank resilience, hinder money market operations, and ultimately jeopardize financial stability.

Barr believes that a smaller balance sheet may lead to more funds flowing into the Fed's liquidity tools. The Fed is working to adjust the duration of its balance sheet to match a broader range of Treasury securities. For the Fed, creating reserves is costless, and if adjustments are necessary, liquidity requirements should be increased rather than decreased.