The price of risk instead reflects the general conditions on financial markets. Even if the quantity of risk remains constant, an increase in the price of risk may lead to a generalised increase in spreads. See, e.g., Manganelli, S and Wolswicjk, G, 2009, What drives spreads in the euro area government bond market?, Economic Policy, 58: 191–240.
4  BIS central bankers’ speeches  market and adverse selection through the exclusion of less reputable counterparties, the current market fragmentation and relatively low trading volumes may persist or even be magnified. Funding costs in the wholesale market may increase asymmetrically across euro area constituencies. Here, the best remedy is to restore full confidence in bank balance sheets through appropriate supervisory action.