The first is that low interest rates lead banks to take excessive risks, and the second is that any further cuts in policy interest rate beyond a “reversal interest rate” discourage risk-taking by banks. While empirical studies on this issue have been accumulating, they are not conclusive about the nature of risks including their probability distribution.
2 The second issue is how to implement policy instruments for safeguarding financial stability. To address this issue, two different approaches are explored. One approach proposes a division of labor in the policy toolkit based on the Tinbergen rule: that is, monetary policy instruments are assigned to the pursuit of price stability, while macroprudential policy instruments are assigned to the achievement of financial stability.