In the week ended June 15, holdings of mortgage backed securities in large domestically-chartered U.S. banks' investment portfolios dropped an unprecedented $65.0 billion (see chart below). In all candor, I do not have a good explanation for such a large decline in an asset category. Could it be that the regulatory suasion that I wrote about on May 26 (http://www.northerntrust.com/library/econ_research/weekly/us/pc052605.pdf) is starting to affect banks' behavior with regard to the "froth" in some housing markets? If so, the Fed might not have to raise the funds rate as high as some believe in order to get the economic response it is seeking. Just a thought.