that momentum in the market, and an associated increase in indebtedness, can be hard to check, particularly if expectations of a rapidly rising market become deeply entrenched. a number of countries have had to take a series of actions over time to slow fast growth in housing market activity to more sustainable rates. see the box on page 22 of the may 2013 inflation report. bis central bankers ’ speeches to return to where i started. the financial policy committee of the bank of england is charged with looking ahead to identify and to counter risks to financial stability. there will always be a number of blinking warning lights – risks generated at home and risks coming from abroad – on our dashboard. the growing momentum in the market is now in my view the brightest light on that dashboard. it has not yet been accompanied by a substantial increase in aggregate mortgage debt, though gross mortgage lending is growing and there are signs that debts are becoming more concentrated. this could fade as affordability and lender constraints act increasingly as a brake on momentum. but other outcomes are very possible and the financial policy committee will need be both vigilant and ready to act. bis central bankers ’ speeches

d'amico, don h. kim, and min wei ( forthcoming ), " tips from tips : the informational content of treasury inflation - protected security prices, " journal of financial and quantitative analysis. figure 3 : fitting the term premium percent 10 - year term premium predicted value ( based on regression against spf inflation expectations and rolling capm beta ) - 1 note : capm is capital asset pricing model. source : federal reserve board staff calculations ; federal reserve bank of philadelphia, survey of professional forecasters ( spf ). low interest rates and the financial system • banking sector o low rates can hurt net interest margins and may promote greater risk - taking and leverage • shadow banking sector o low rates may also encourage intermediation outside of the regulated banking sector • other financial firms o pension funds with fixed target rates or insurance companies selling products with embedded rate floors will be less profitable and may take greater risks to meet their targets • asset markets o low rates may lead to a reach for yield, decreasing risk premiums • nonfinancial sector o households low rates may create housing price bubbles and encourage a run - up in household debt o nonfinancial corporations low rates may promote leverage and excessive risk - taking or low underwriting standards to nonfinancial corporates percent of interestearning assets ( s. a. a. r ) figure 4a : net interest margins 5. 5 figure 4b : return on assets percent of assets ( s. a. a. r ) ccar banks other banks 4. 5 3. 5 - 1 ccar banks - 2 other banks 2. 5 - 3 1. 5 - 4 note : net interest margin is equal to net interest income divided by average earning assets. ccar is comprehensive capital analysis and review. source : federal reserve board, form fr y - 9c, consolidated financial statements for holding companies. note : return on assets is equal to net income divided by average assets. ccar is comprehensive capital analysis and review. source : federal reserve board, form fr y - 9c, consolidated financial statements for holding companies. june 1, 2007 = 100 figure 5 : equity prices of life insurers versus the s & p 500 snl life index s & p 500 index source : bloomberg. figure 6a : forward price - to - earnings ratio of s & p 500 firms figure 6b : equity risk premium percent historical median - 2 note : aggregate forward price - to - earnings ratio of s & p 500 firms