Federal Reserve Board member Stephen Milne stated that he hopes the Federal Reserve will first readjust a series of regulatory rules on Wall Street before discussing other economic issues related to the central bank's balance sheet. "Over the years, financial regulation has basically moved in one direction, continuously tightening restrictions on the banking industry," Milne said in remarks prepared for the Bank Policy Institute on Wednesday. He added that the interaction between regulation, financial markets, the economy, and the implementation of monetary policy is often underestimated. "Although there are frequent discussions around bank reserve balances and their interest, balance sheet composition, and the intermediation of the Treasury market, I believe these discussions are mostly downstream issues of the bank regulatory framework," he said. Milne emphasized that regulators should avoid overreacting, stating that the rules introduced after the 2008 crisis went too far. He pointed out that this has led many traditional banking businesses to fall outside the regulatory scope, partly due to "cumbersome rules." "While I have no prejudice against non-bank financial companies, credit allocation should be driven by market forces rather than regulatory arbitrage," he said.