What is surprising is that the yield on these AAA-rated securitized instruments was often much higher than the yield on Treasuries even though they also had the same AAA rating. Had market functioned normally, this price distortion could not have been maintained over the long term.
Financial stability and the central banks’ key objective of price stability are obviously connected, both directly and indirectly through the real economy. But a stable financial system also fosters greater integration of the financial markets. And the more integrated the financial markets are in the euro area, the more effective will be the transmission of ECB’s monetary policy decisions.