The loss of high-quality borrowers thus introduces not only systematic vulnerabilities but also portfolios that are less idiosyncratic and more sensitive to the business cycle. Idiosyncratic risks have always loomed larger in small bank portfolios because their borrowers' well-being reflects such a wide range of factors, especially local and regional developments.
We’ve all seen evidence of this excess demand, such as long delivery times, waiting to get into restaurants, finding out that the item you want to purchase has sold out, or business owners not concerned about losing customers when they raise prices. And of course, excess demand can also show up through inflation. This is what I want to talk about next.