For example the size of the wealth effect following changes in the policy interest rate could be larger the higher asset price valuations as the share of financial assets in total wealth is then more important. But the key point is that the possibility of financial distress in case of major price corrections is not explicitly taken into account, ex-ante.
It can provide a valuable alternative to bank financing for many businesses and households and support economic activity. Developing alternative channels of financing through deep capital markets is one of the key objectives of the Capital Markets Union (CMU) initiative.