Jaime Caruana, the general manager of the Bank of International Settlements, recently warned banks to keep an eye on the rising price of investments that have resulted from low interest rates.
Investments such as U.S. junk bonds, which are issued by companies with subpar credit ratings, have increased as investors turn away from safer lower-yield investments in favor of higher interest yields, though that trend could reverse after interest rates rise, according to The Washington Post.
“We should be monitoring the levels of the asset prices that have moved rapidly, particularly in risky assets,” Caruana said, The Washington Post reports. “Financial institutions need to understand that the level of rates is very low. [Eventually there will be] a return to normality, and I think they should be at some point in time resilient to this type of movements.”
The Institute of International Finance similarly warned that low interest rates could create a “boom-bust cycle” after the central banks end their stimulus programs. Central banks in the U.S., U.K. and Bank of Japan have reduced interest rates to historic lows and pushed funds into the financial system through the purchase of assets.
The Bank for International Settlements, based in Switzerland, is a global central bank organization comprised of the U.S. Federal Reserve, Bank of Japan, Bank of England and the European Central Bank, which oversees monetary policy for 17 countries that use the euro, according to The Washington Post.