An abrupt increase in interest rates would put pressure on banks – their funding costs would go up, and their interest income would rise at a slower pace initially. An abrupt rise in interest rates would also send valuations down from their current high levels and thus cause losses.
That scenario of persistently low interest rates would amplify the search for yield, with banks and other market participants taking on greater risks in an effort to keep their profits steady. Life insurers and pension institutions would find it increasingly difficult to generate enough income to cover the guaranteed returns they have promised to pay.