In this article, we provide a simple supply and demand framework in which the build‐up of an excessive level of leverage can result in a shortage of safe assets. On the basis of this, we discuss various policy options. First, we address the question of what policy‐makers should do if shortages of safe assets arise. Second, we discuss what has to be done to prevent potential shortages of safe assets. Our main finding is that a smoother leverage cycle – which, in particular, implies less leverage in booms – is a major condition for preventing shortages of safe assets.