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Are Low Rates Jeopardizing Financial Stability?

* September 21, 2016

Excessive financial deregulation, rather than low interest rates, may be the primary cause of financial crises.



Our Global Investment Strategy service argues that low interest rates may not have been the main contributing factor to past financial crises. For example, housing bubbles in the Nordic countries in the late 1980s occurred against a backdrop of high interest rates, while persistently low interest rates in the U.S. in the 1950s and 1960s failed to generate asset bubbles or out-of-control credit booms.

Rather, rapid financial deregulation may have been the reason behind prior crises. Encouragingly, the thrust of recent legislation in the U.S. and many other developed economies has transformed banks into the equivalent of well-regulated utilities. This implies lower rates of return on equity and assets for investors, but also diminished risk of massive losses.

As discussed in the next Insight, low interest rates are not generating the same sort of distortions in the real economy as they did during prior stock market booms.

http://blog.bcaresearch.com/are-low-rates-jeopardizing-financial-stability

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