23 Of course, an equally important reason for the increase in the size of the financial sector is the global accumulation of savings over time. It has been argued 24 that the pre-crisis boom in US real estate and securitisation markets reflected high foreign demand for safe US assets resulting from “excess world savings” in the context of persistent global imbalances.
According to this interpretation, foreign asset demand not only pushed down the risk-free interest rate in the US but also compressed the risk premia on risky assets. The low cost of financing, in turn, fostered an increase in the level of leverage of the domestic financial sector which exacerbated systemic risk.