While macroprudential tools are effective at slowing credit growth during economic expansions, they face clear operational limitations when attempting to stimulate credit creation during deep recessions, a policy challenge known as Credit Rationing.

Lowering capital buffers and relaxing LTV caps gives commercial banks the capacity to underwrite new loans during a downturn. However, if banks face high economic uncertainty and fear widespread corporate defaults, they may choose to hoard cash and ration credit anyway to protect their balance sheets, requiring targeted central bank liquidity interventions to support credit flows.