To some extent, this “reach for yield” may have been driven by a failure on the part of investors to recognize that the underlying equilibrium real interest rate had fallen, which implied that maintaining a given return on investment could only be achieved by accepting greater risk.
To strengthen transparency, we are establishing a Single Supervisory Mechanism (SSM), which tasks the ECB with overseeing major parts of the European banking system. By placing this responsibility with an independent institution at European level, the Single Supervisory Mechanism will ultimately allow earlier identification of financial risk.