A number of economists have, however, raised concerns about financial sector risks that may build with prolonged use of unconventional policy. 5 Asset prices may not just revert to earlier levels on exit, but they may overshoot on the downside, and exit can cause significant collateral damage.
One reason is that leverage may increase both in the financial sector and amongst borrowers as policy stays accommodative. 6 One channel seems to be that a boost to asset liquidity leads lenders to believe that asset sales will backstop loan recovery, leading them to increase loan to value ratios.