Analysts worry that declining commercial real estate values in the office sector could cause more bank closings, especially among small institutions.
so new lending and refinancing will be challenged both by reduced rental revenues and also higher interest rates for borrowing and refinancing.
For Minsky, investors become overly optimistic during growth periods, taking on increasing risks. These can spread through financial markets and also infect the real economy of goods and services through a process of “contagion” where other firms join in the speculative boom, increasing the risks to the entire economy.
Minsky saw these recurrent risks as endemic to the system. He memorably said “stability leads to instability,” as financial “innovators” seeking high profits will “always outpace regulators; the authorities cannot prevent changes in the structure of portfolios from occurring.”—a financially driven crash tied to risky lending and contagion—driven this time by small banks and CRE lending. The FDIC can handle individual bank failures.
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