[11] But concerns remain that the increase in asset and housing prices is excessive and results from the exceptionally long period of extremely accommodative monetary policy. As several economists have noted, monetary policy is a key determinant of the financial system’s ability to create money. [12] In their view, money creation, credit creation and asset price determination are tightly interdependent.
Elevated asset prices relative to fundamentals increase the risk of a future correction in housing or equity markets. Such a correction would affect banks directly by reducing the value of collateral backing loans and indirectly by affecting confidence, leading to weaker overall economic activity.