Sunday, December 06, 2009

This Is Crazy Talk

I mean, nothing like this has ever happened.

FRANKFURT -(Dow Jones)- The ultra-low level of global interest rates may increase the risk of excessive risk-taking by banks, and consequently of new asset price bubbles, according to a study published Monday by the Bank for International Settlements.

A special report in the BIS's quarterly survey of international finance concluded that there is "evidence of a significant link between an extended period of low interest rates prior to the (2007-2008 financial) crisis and banks' risk-taking."


The report's author Leonardo Gambacorta urged central banks to "learn how to factor in the effect of their policies on risk-taking", adding that "monetary policy is not fully neutral from a financial stability perspective".

Though now I don't think the issue is low interest rates per se but the Fed's decision to backstop everything.