We should note that while the economic crises in many countries during periods of interest rate increases over the past few decades can be traced in part to common phenomena such as rises in funding costs and declines in asset prices, they have also been attributable to large extents to financial institutions’ adverse selection.
And this is because the adverse side effects and economic vulnerabilities built up through the widespread pursuit of high-risk, high-return investment during periods of low interest rates become evident once rates begin to rise.