By the early spring of 1988 it was evident that the economy had stabilized and we needed to begin reversing the easy stance of policy. Another development that confronted policy was the commercial property price bust of the late 1980s and early 1990s.
Since a large volume of bank and thrift loans was tied to the real estate market and backed by real estate collateral, the fall in property prices impaired the capital of a large number of depositories. These institutions reacted by curtailing new lending -the unprecedented “credit crunch” of 1990 and 1991. Not unexpectedly, our policy response was to move toward significant ease.