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

##ctioning, they could also reflect more structural underlying problems that monetary policy measures cannot resolve. if the central bank were to respond to the latter, it would intervene in areas where other players have a responsibility to act. the key challenge is therefore to assess which circumstances apply, before deciding on the most appropriate instrument or set of instruments to activate. for a discussion of these results in a broader context, see bonam, d., galati, g., hindrayanto, i., hoeberichts, m., samarina, a. and i. stanga ( 2019 ). inflation in the euro area since the global financial crisis. dnb occasional study no. 3. 5 see for instance gertler and karadi ( 2015 ), monetary policy surprises, credit costs, and economic activity, american economic journal, 7 ( 1 ), 44 ‐ 76. it is important to note that, next to the higher level of uncertainty, employing unconventional tools will also likely carry larger risks, for instance in terms of longer - run side – effects. i have therefore argued before that policymakers should consider exercising more caution in deploying unconventional instruments. 6 in times of severe market stress with equally severe frictions, however, the advantages of more aggressive action might outweigh the disadvantages of higher uncertainty and larger risks. specific challenges for the ecb against this backdrop, let me focus on two additional challenges related to the institutional context within which the ecb operates. the first challenge here is provided by the observation that the ecb has to operate in an incomplete monetary union with a more convoluted process of policy coordination. the design of our economic and monetary union remains a compromise between limited risk - sharing and a large degree of national liability and control. this confronts the ecb with more institutional restrictions than other central banks. it has to deal with 19 different fiscal counterparts, for instance, all of which face different sovereign risk premia. this makes the purchase of government bonds more fraught than in other jurisdictions. to what extent further steps toward fiscal risk - sharing should be taken, is very much a political question. from my perspective, i can only note that more effective fiscal stabilization would have the potential to make the ecb ’ s job significantly easier. the second challenge specifically faced by the ecb relates to the euro area ’ s financial architecture. within the euro area, banks play a dominant role. pervasive banking sector weaknesses like non - performing loans and