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The requirement by the Fed that banks increase their equity ratios would confirm that a deflationary period is expected. That people were allowed to re-finance via TARP to lower interest rates and shorter amortization periods also points to that event. Lower loan balance to collateral value is extremely important to a bank. When a loan is found to be upside down by the regulators the bank has to classify the loan and up its loan loss reserve which impacts bank earnings. You can imagine what a larger percentage of “classified loans” means to the longevity of that particular bank.