But another feature that catches one’s eye is that, post-crisis, the earnings yield on listed companies seems to have remained where it has historically been for a long time, even as the return on safe assets has collapsed to be close to zero (Graph 2).
Financial frictions, for example, were largely absent from mainstream central bank models.6 Generally speaking, there was a lack of attention to “financial plumbing” – to the fact that differences in liquidity, capital and supervisory standards meant that banks’ reaction to shocks could magnify heterogeneity.7 The creation of the banking union has fixed many of these shortcomings, but not all of them.