There’s a simple reason for this – financial asset bubbles have historically been associated with an increase in bank credit and the size of banks. Today, the flow of credit to the economy is picking up but remains moderate. What is more, the size of the banking sector is limited by regulation. What about bubbles in unregulated financial institutions in the “shadow banking” sector?
The increase in credit in this sector is happening quickly, and we have a limited number of tools with which to constrain it. It’s an area of concern for the future. By being so cautious, isn’t the ECB at risk of finding itself out of ammunition when the next crisis hits?