That’s troubling because the increase has surfaced despite the continuation of favorable economic and financial conditions in the United States. It appears the vulnerability of these loans was heightened in some cases by weak underwriting practices. In these cases, a recurring theme 3  BIS Review 102/1999  has emerged. Lenders are relying too much on the continuation of good times.
They’re assuming a very optimistic view of their borrowers’ operating prospects and that their borrowers always will have ready access to financial markets. And sometimes they’re failing to subject loans to meaningful “stress tests” that would, for instance, tell them if their borrower could withstand an unexpected shock to operating revenue.