Dallas Fed President Lorie Logan just co-authored a paper that, in central banking terms, qualifies as a bombshell. The core argument: if regulators fix the way banks think about liquidity requirements, the Federal Reserve could meaningfully shrink its balance sheet from its current $6.7 trillion perch.
What Logan is actually proposing
Logan, alongside co-author Sam Schulhofer-Wohl, published the paper on April 2, 2026. It zeroes in on one central problem: banks are hoarding reserves at the Fed not because they need to, but because the regulatory framework incentivizes them to.
Right now, banks hold roughly $3 trillion in reserves at the Fed. That’s a massive chunk of the $6.7 trillion balance sheet, which also includes about $2.4 trillion in currency in circulation and more than $200 billion in other liabilities.
Banks park so much cash at the Fed partly because borrowing from Fed liquidity facilities carries a stigma. If a bank taps the discount window, the market reads it as a distress signal, even when it’s not. So banks over-prepare by sitting on enormous reserve piles instead.
