Fears over small regional banks in the US have focused on the unrealised losses on debt securities and deposit insurance but, in what would have echoes of the savings and loan crisis, maybe we should be more worried about deposit flight due to rising interest rates. Under those circumstances, the risk is that a pull-back in lending, particularly by small banks, triggers a downturn in commercial real estate which, in a worst-case scenario, could develop into an adverse feedback loop.
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