Benoît Cœuré and Joachim Nagel: Interview in Börsen-Zeitung

Joint interview with Mr Benoît Cœuré, Member of the Executive Board of the European Central Bank, and Mr Joachim Nagel, Member of the Executive Board of the Deutsche Bundesbank, conducted by Mr Mark Schrörs of Börsen-Zeitung on 12 September 2013, published on 18 September 2013.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Dear Mr Cœuré, Dear Mr Nagel, former US Treasury secretary Henry Paulson has warned about a new financial crisis. The BIS has called it a "phenomenon reminiscent of the exuberance prior to the global financial crisis". Are we already sowing the seeds of the next financial collapse?

Nagel: A long period of low interest rates increases the risk that market participants will "search for yield". Overexuberance in the markets could pose risks to financial stability. As central banks we have to monitor that very closely. This is all the more true because we now have a major share of responsibility for macroprudential supervision. At the moment, I see a low risk of a crash of the kind you have described.

Cœuré: In this moment I would be less worried than the BIS is. But I'm talking about the here and now, not about the future. In the future we have to be very cautious.

What do you mean? This BIS is especially worried that historically low yields led to a continuing squeeze of credit spreads and increased issuance of riskier bonds.

Cœuré: We know that there is a risk of asset price bubbles if there is a lot of liquidity. We have to remain very vigilant. But you also have to keep in mind that the whole regulatory framework has changed radically. Before 2007 banks and other financial actors have borrowed to invest in risky assets. Now the ability for banks to do so is much more limited. And with Basel III we will get even higher capital requirements and the leverage ratios. But there is no reason for complacency.

In Germany a lot of people fear a real estate market price bubble.