Skip to main content

The Fed and the market are both right

That last bit is what worries Paul Ashworth of Capital Economics. He wrote in a Friday note:

"there is a growing downside risk that the stresses on small banks and commercial real estate develop into an adverse feedback loop; with small banks reining in lending, which causes an uptick in commercial real estate loan defaults, which drives capital values down further increasing [loan-to-value] ratios and forces small banks to increase their loan loss provisions, which triggers an even greater tightening in bank lending standards. In a worse-case scenario, we could have a rolling crisis that lasts for years — echoing what happened during the [1980-90s savings and loan] crisis."

View article