A central bank that wished to try to reduce the risk premia on such assets would not face great operational obstacles.
In high-income countries, additional growth in the financial sector may even have negative effects on growth. Hence, there is no “optimal” size of the financial sector. This is important for us as policymakers. It shows that we should aim at providing the right institutional framework and incentives for the financial sector. The goal should be to prevent excessive leverage and risk taking.