Is Nominal Bank Regulatory Capital The Cause Of Deflation Risk?

A comment I posted on, "Krugman: 'Why Is Deflation Bad?'" on Calculated Risk:

Electronics and other consumer goods, such as appliances, can experience quick price decreases (deflation). Sales are brisk because many retailers give price guarantees that if there is a lower price in a fixed time period after purchase they will match the price and refund the difference.

When events are expected or feared people use contractual provisions to remove the risk, as Coase would expect. If anticipated deflation were a real problem, people would add into purchase and debt contracts provisions to offset the deflation risk, just as CPI increases were added to offset inflation risk in many contracts.

Deflation protection for leases, rentals and sales are easy to incorporate and likely will be incorporated. Mortgages are much more difficult only because regulatory bank capital is in nominal terms and lenders cannot incorporate a deflation offset into debt such as mortgages without destroying their capital base. If the regulators would incorporate deflation into their regulatory capital calculations, then mortgages and other bank loans could also offer deflation protection into their debt terms upon issuance or upon renegotiation. A major impediment to banks in the recent financial crisis was the loss of bank capital if they recognized the lower collateral value of the real estate behind their mortgages.

The issue is not deflation. It is the contractually ability to protect against the deflation risk and government regulation of banks is the major impediment.