When interest rates decline due to monetary easing, lending margins of financial institutions narrow, given the limit to reducing loan interest rates, and their capital adequacy ratios remain under downward pressure as they are unable to secure profits commensurate with their risk-taking. In contrast, the second pattern involves a rapid emergence of side effects.
With lending margins narrowing and yields on securities declining, financial institutions increase their amount of 9  risk-taking in lending and investment in order to acquire profits. These investments and loans transform into impaired assets in the event of an economic downturn, and the capital adequacy ratios of financial institutions consequently plunge as credit costs in particular increase rapidly.