But it also leaves the banking sector exposed to interest rate risk and short-term increases in funding costs. Overall, we therefore remain highly vigilant and are closely monitoring prices, lending volumes and lending standards. Generally, gradual and predictable increases in market interest rates would contribute to financial stability. The profitability of financial institutions would increase, which supports the build-up of capital buffers.
A gradual increase in rates would also reduce the incentives to engage in risky lending or investments (“search for yield”), thus slowing down the build-up of leverage and 1/4  BIS central bankers' speeches  dampening asset price surges. By contrast, an abrupt, unexpected increase may have negative implications for financial stability.