Now we know that there was trouble brewing under the surface. The underpinnings of global financial stability were becoming weaker. Global indebtedness increased, fuelled by current account balances and the “deepening” of international financial markets (read: recycling the same funds several times over).
The decline of inflation was not only due to monetary policy, but also the avalanche of cheap consumer goods from the emerging economies such as China contributed to it. For banks, the new financial environment was characterized by low interest rates and low perceived risks.