search for yield, which can lead to a situation where returns no longer reflect underlying risk fundamentals. for example, at the fsb, we are closely monitoring developments in leveraged finance and the clo market. this market has grown to an estimated total of 3. 2 trillion usd and has been accompanied by declining lending standards and higher corporate leverage. covenant - lite loans were rare prior to the crisis, but since 2009 its share of issuance has increased to 50 - 80 %. moreover, there has been an increase in leverage and deterioration in credit quality. over 60 % of outstanding loans has a single b credit rating or lower. needless to say, such lending activities are vulnerable to a sudden change in market sentiment, a rise in interest rates or deterioration of the economic situation. public and private indebtedness a second important effect is that the low interest rate environment has led to a strong increase in total debt, both within the public as well as the private sector. total debt - to - gdp ratios stand at 350 % for japan, and around 250 % for the us, the uk and the euro area. higher debt levels may reflect a response to structurally lower interest rates and therefore structurally higher sustainable debt levels, but they can also create vulnerabilities. for example, despite the favorable economic conditions in recent years, very few countries have actually reduced their public debt ratio. in the current environment, governments do not face financing constraints. debt sustainability issues could however resurface when market sentiment shifts and risk premia were to increase. sovereign debts are particularly prominent in europe, where the preferential treatment of sovereign exposures effectively implies zero - risk - weighting at the banks. corporate indebtedness in advanced economies has also been rising and has peaked over 160 % of gdp. this might result in a debt trap where corporates can only service their debt because of the low interest rates, but do not have sufficient underlying earning capacity to cope with an unexpected rise in interest rates ( zombification ). real estate markets the third systemic risk that i want to mention is the strong increase in both residential housing prices and commercial real estate in recent years. real estate markets have traditionally been an important factor in the development or amplification of financial crises. several jurisdictions show increased signals of overvaluation in significant segments of the market. ii. macroprudential toolkit given the current stance of monetary policy and the outlook of a prolonged period of low interest rates, it

they at their very best slow down the build - up of stability risks within the financial system. this has several important policy implications. for one, despite of the limitations i sketched, we should remain committed to full implementation of the international reform agenda. limitations in scope and impact cannot be an argument to deregulate. but on top of this, we should continue to work on structural challenges within the economy and its financial system. importantly, we should also continue to think about the implications for the overall macroeconomic policy mix. the observation that macroprudential policies cannot be fully relied upon to contain systemic risks would also have to be taken into account in the conduct of monetary and fiscal policy. to be clear : it should not have an impact on the mandate or direction of monetary policy, which would continue to be fully geared towards price stability. however, financial stability would have to be a relevant factor to take into account within the design and the proportionality of policy measures. obviously, these are complex observations that require further analysis. i look forward to discuss these and related matters in our quest for further operationalization of effective macroprudential policies.