The wealth effect of asset price increases, thus, seemed to be much more significant than what was perceived earlier by the policy makers. Correction in asset prices, thus, led to an intense deleveraging process. Assets prices and leverage represent two important variables that must be constantly monitored, as risk from both of them to the financial system could be significant.
Deterioration in credit standards The deterioration in credit standards facilitated by the sustained easy monetary policy stance and deregulation induced opportunity for shifting of credit risk through securitisation, contributed to growth in credit to sub-prime segments. It is often argued that easy access to liquidity alone could not have led to deterioration in credit standards.