The dotted line corresponds to a BVAR counterfactual for lending volumes, taking December 2021 as the last observation and projecting volumes conditional on the path of monetary policy rates. The type of BVAR used is the one by Altavilla Giannone, and Lenza (2016). The latest observations are for May 2023.
Being too restrictive in granting liquidity can cause a spark to turn into a fire. Granting liquidity too liberally, on the other hand, and propping up institutions without sustainable business models, may also mean that the water used to extinguish the fire ends up causing more damage than the fire itself.