Why it is not the case that the commercial banks would not lend because of the low interest rate.

I have seen some people argue that lending activities by the commercial banks have been weak because the central banks are pushing the interest rate low. Indeed, lending activities have been weak although they are bouncing back now.

The question is why they have been so weak and not been returning to the pre-crisis level despite the historically low interest rate. Does it imply that the banks do not want to lend because of the low interest rate? Some people misunderstand what is happening in the world, for example, Denmark's negative interest rate policy. This is what many people get wrong. The interest rates close to or below zero are policy rates such as the target for overnight interest rate or central bank funds rate. Those rates are the interest rates that the central bank offers the commercial banks under its charter. As long as the commercial banks are allowed to lend money higher than those rates, they can make comparable amount of profits to the pre-crisis level and this is what is happening:

The U.S. commercial banks can still make profit of 3% on the top of its federal funds rate from each lending activity even though the federal funds rate is very close to zero. That's the rate of profit even before the crisis. The interest rate is not now rising despite growing lending activities since the mid 2010 simply because zero federal funds rate is not low enough yet. That is why the actual monetary aggregate growth is relatively low even though massive increase in monetary base.

Even though the MZM growth rate is about 10%, it is actually not high enough given the fact that the economy is annually growing by 2% and the annual inflation rate is between 2-3%. Don't forget the velocity of money is historically low; in other words, people rather sit on cash or put it in the bank than spending it. It is not the case that the banks do not want to lend because of low interest rate; it is low investment demand and low money demand.