On May 15, Federal Reserve Governor Barr stated that relaxing liquidity regulations to reduce the central bank's balance sheet is a bad idea that could jeopardize the safety of the financial system. 'Recent discussions about reducing the Fed's balance sheet to lessen our 'footprint' in the financial system have been quite loud,' Barr said in a speech at a conference hosted by the New York University Monetary Market Association. 'I believe that reducing the balance sheet is the wrong goal, and many of the proposals put forward to achieve this will weaken the resilience of banks, hinder the normal functioning of the money market, and ultimately threaten financial stability,' Barr stated. 'Some proposals could actually increase the Fed's 'footprint' in the financial markets.' Barr pointed out that allowing banks to reduce their liquidity holdings as a means of shrinking the Fed's assets could increase the risk of these institutions resorting to the Fed's liquidity tools in times of distress. He noted, 'The size of the Fed's balance sheet is not the correct measure of its influence in the financial markets.' Under the Fed's system where reserves can be created 'at no cost,' the real focus should be on the effectiveness of the Fed's implementation of monetary policy. (Dongxin News Agency)