The president of the New York Federal Reserve said he could see the central bank's balance sheet remaining at $3 trillion or more, even after normalization runs its course.

"I’m a strong advocate for a 'floor system,' because we will need excess reserves in the system," to address future economic crises, William Dudley said at the U.S. Monetary Policy Forum in New York on Feb. 23.

"The balance sheet isn’t going to be at $800 billion," Dudley said, referring to what it was before the financial crisis. "We may go back to $3 trillion or $3 trillion-plus."

Dudley was responding to a paper presented by economists that concluded that the reduction of the Fed's $4.5 trillion balance sheet was likely to have less effect on interest rates than many market participants believe.