Three top European central banks warn of financial bubbles

FRANKFURT: Three of Europe’s top central banks raised warning signals yesterday about the risk of financial bubbles that their ultraeasy monetary policies are blamed for creating.

The European Central Bank (ECB), Germany’s Bundesbank and Denmark’s Nationalbank highlighted pockets of vulnerability ranging from excessive property prices in some countries to complacent investors and easy lending by some banks.

Critics have long blamed these phenomena on the central banks’ own ultra-low interest rates, aimed at spurring lending and risk-taking, and massive cash injections, such as the ECB’s 2.55 trillion (RM12.5 trillion) bond-buying programme.

“Risks have built up, in particular, during the prolonged period of low interest rates – “the valuations of many investments are very high,” the Bundesbank warned.

The ECB has extended its bond- buying stimulus into its fourth year, albeit at a reduced pace.

ECB vice-president Vitor Constancio defended the decision yesterday but he acknowledged that the ultra-easy policy had played a role in bringing market volatility, a measure of investors’ sensitivity to bad news, to record lows.

Denmark, though not in the eurozone but closely aligned with ECB policy, had a similar warning.

“Several banks are stepping on the accelerator by easing credit standards and granting loans to more vulnerable customers,” Danish central bank chief Lars Rohde said. – Reuters