Federal Reserve advisor: Warsh may need five years to shrink the Fed's balance sheet.

Federal Reserve Chair nominee Kevin Warsh hopes to significantly reduce the Fed's $6.6 trillion balance sheet. A top financial economist suggests he may need more than one term to accomplish this task. Darrell Duffy, a Stanford Graduate School of Business professor and longtime Fed advisor, argues in a new paper that if the Fed wants to significantly reduce its influence in financial markets without causing severe stress, reforms are needed, including a radical overhaul of bank liquidity requirements and a redesign of the payment system. Once Warsh is confirmed by the Senate, he can immediately implement some reforms, provided he has the support of his colleagues. Duffy suggests other reforms could take up to five years, meaning this work will continue beyond Warsh's four-year term as chair. (Jinshi)