In the past few months, extreme negative outcomes appear less likely, and market participants have regained confidence. While it is good news that the tail risks have diminished, it also means that it is now becoming even more important to monitor financial institutions’ risk-taking behaviour.
The risks of household imbalances, as well as other risks associated with low for long, can be addressed in several ways. First, households, financial institutions and investors need to make prudent decisions. More normal times will return, and with them more normal interest rates and costs of borrowing.