Balance Sheet Normalization

Balance Sheet Normalization

The practice of returning a balance sheet to its usual size. For example, if a company has taken on an unusual amount of debt to pay for a special circumstance, balance sheet normalization may involve repaying the debt in short order. For instance, it may not renew bonds when they mature.
References in periodicals archive ?
The Statement Regarding Monetary Policy Implementation and Balance Sheet Normalization released in January as well as the principles and plans listed below together revise and replace the Committee's earlier Policy Normalization Principles and Plans.
The FOMC may be close to finalizing its balance sheet normalization plans, but may not have finished just yet, leaving the Fed continuing to communicate the end of the roll-off will come later this year, with "ample" balances (including a buffer).
"With the Fed ending the balance sheet normalization process, they are removing the spotlight on the balance sheet.
"Having said that," Hooper said, "the Fed should be more flexible regarding balance sheet normalization, given how powerful a tool it is."
Some economists are now predicting it will have to stop shedding bonds in one to two years and, when it's done its post-crisis "balance sheet normalization," end up with a roughly $3.5-trillion portfolio.
However, since the fall of 2017 the Fed has been in a "balance sheet normalization period," during which the size of its balance sheet is gradually shrinking over time.
It would require coordination between the Fed and Treasury, but the Fed could adjust the ongoing balance sheet normalization by rolling some of the MBS proceeds into bills."
This was despite the boost to the greenback after US Federal Reserve officials signaled to begin balance sheet normalization and maintained forecasts to raise interest rates again this year.
"In October, the Committee will initiate the balance sheet normalization program," which it instituted following the 2008 financial crisis, the Fed announced.
Washington, DC, July 24, 2017 --(PR.com)-- Federal Reserve Bank Chair Janet Yellen testified that the Fed will likely continue its plans to implement federal funds rate hikes and balance sheet normalization measures in order to gradually raise short and long-term interest rates.
"The committee currently expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated," the Fed said in its statement.
It's not clear the FOMC will have finalized its balance sheet normalization plans just yet, with the Fed continuing to communicate the end of the roll-off will come later this year, with "ample" balances (including a buffer).