Fed's 'ample reserves' approach is a focus of Warsh's balance sheet review

Warsh, who quit as a Fed governor in 2011 in part over disagreement with the policy decisions driving its expanding balance sheet, said that ample notice would be provided of any changes.

"It took us nearly 18 years to find our way into this balance sheet," Warsh said. "We're holding a lot of long-term Treasury debt, long-term mortgage-backed securities. We won't be able to make changes overnight. Any changes that we make would be well deliberated, would be public, would be understood, and there'd be quite a bit of time before any of that was operationalized."

Prior to the financial crisis, the Fed held less than $1 trillion in bonds - all of them U.S. Treasuries and more than half of them short-dated T-bills - as it operated under a "scarce reserves" regime that left banks to compete for their nightly reserve requirements among themselves.

The Fed shifted course as the crisis reached its peak in late 2008. It sought to ensure that banking system reserves are in ample supply, an approach that requires substantial central bank asset holdings. In the same moment, the Fed embarked on large-scale asset purchases, called quantitative easing, to stimulate economic growth in addition to cutting rates to near zero.