2  BIS central bankers’ speeches  they may have an excessive incentive to build leverage. 7 These effects are exacerbated if, over time, lenders become reliant on asset sales for recovery, rather than on upfront project evaluation and due diligence.
Another possible channel is that banks themselves become more levered, or equivalently, acquire more illiquid balance sheets, if the central bank signals it will intervene in a sustained way when times are tough because unemployment is high. 8 Leverage need not be the sole reason why exit may be volatile after prolonged unconventional policy. Investment managers may fear underperforming relative to others.