Major central banks’ balance sheets have more than tripled since 2008
Excess demand triggered by the fiscal and monetary response to the pandemic merely exacerbated imbalances created by the policy response to the global financial crisis (GFC) of 2008-10.
Moreover, post-GFC financial reforms inadvertently encouraged regulatory arbitrage, paving the way for an exponential increase in the share of financial assets held by lightly regulated nonbank financial institutions such as hedge funds and crypto exchanges.
These institutions currently account for roughly half of all financial assets, thereby exacerbating systemic risks.
Central banks missed the opportunity to embark on serious quantitative tightening in the post-GFC decade.
MARIO I. BLEJER and PIROSKA NAGY MOHÁCSI
Project Syndicate 3 August 2023
Did they really think there would be no financial consequences to keeping interest rates at or near zero for more than a decade?
Or that the Great Unwinding of the Fed’s relentless policy of zero interest rates would be painless?
Bernanke’s two successors, Janet Yellen and Jay Powell, kept up the bond buying, in part to appease the traders, borrowers and people making money from money, all of whom had become addicted to cheap money.
Honestly though, who in their right mind thought it was a swell idea in September 2021 to buy high-yield bonds — or “junk bonds” — when they were yielding less than a piddling 4 per cent? Junk bonds are called junk bonds for a reason
William Cohan Financial Times 21 October 2023
https://www.ft.com/content/aa92d184-f5cb-4d45-b0e4-ad0e8137ecb5
Banks Need to Worry About Shadow Banks - non-bank financial intermediaries.
https://englundmacro.blogspot.com/2022/11/banks-need-to-worry-about-shadow-banks.html
Moral hazard
https://englundmacro.blogspot.com/2023/05/we-need-new-approach-to-bank-regulation.html
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