As a case in point, the capital ratio of German enterprises has climbed from just under 20% to just shy of 30% in the last ten years, which means that enterprises are more resilient to shocks. The signs of significant overvaluation are less clear-cut in the equity markets than in the bond market. Volatility in these markets is relatively low, however.
Investors might, then, feel inclined to extrapolate the current favourable setting into the future, presuming it to be the normal state of affairs – and turn a blind eye to a possible end to this quiet spell. Were this to occur, an abrupt and massive change in asset prices might disrupt the proper functioning of the entire financial system.