At the same time, with debt service current and market risk premiums cyclically low, and with the same inability to quantify and measure risk, supervisory criticisms of standards are difficult to justify.
When the economy begins to slow and the quality of some booked loans deteriorates, loan standards belatedly tighten and supervisors’ criticism of previous standards is taken more seriously, inducing an even greater tightening of credit. In part, the examiners’ observations have often provided a reality check by which some banks came to recognize a deterioration at first denied.