The article does not describe the "too big to fail" risk where the central bank lets the commercial banks not pay their liabilities to the central bank.
"Market forces constrain lending because individual banks have to be able to lend profitably in a competitive market."
If interest rates are a limit on the ability of commercial banks to lend, and the central bank keeps interest rates artificially low, then that check on bank lending is useless. The only real limit is the number of people/companies/governments willing to take out cheap loans in dollars.
"Lending is also constrained because banks have to take steps to mitigate the risks associated with making additional loans. "
Not if they are too big to fail, the more loans the more profit and the risks are externalized. Even if they are not bailed out they can always just go bankrupt. If the "risks" are not something the individual bankers care about, this is no constraint on them; they see it as personally riskless. Who cares if the company folds in five years.
So it looks like the only meaningful limit on commercial banks is the third one:
"Regulatory policy acts as a constraint on banks’ activities in order to mitigate a build-up of risks that could pose a threat to the stability of the financial system."
However, banks can use regulatory capture and lobbying to be allowed to increase their loans (and hence profit) and ignore the risks. Again, the bankers individually may not care about the risks to the bank as long as they personally get wealthy.
All this used to work because bankers cared about doing the right thing and the company had a "self"-interest in continuing. I think that has changed for many bankers.
"Market forces constrain lending because individual banks have to be able to lend profitably in a competitive market."
If interest rates are a limit on the ability of commercial banks to lend, and the central bank keeps interest rates artificially low, then that check on bank lending is useless. The only real limit is the number of people/companies/governments willing to take out cheap loans in dollars.
"Lending is also constrained because banks have to take steps to mitigate the risks associated with making additional loans. "
Not if they are too big to fail, the more loans the more profit and the risks are externalized. Even if they are not bailed out they can always just go bankrupt. If the "risks" are not something the individual bankers care about, this is no constraint on them; they see it as personally riskless. Who cares if the company folds in five years.
So it looks like the only meaningful limit on commercial banks is the third one:
"Regulatory policy acts as a constraint on banks’ activities in order to mitigate a build-up of risks that could pose a threat to the stability of the financial system."
However, banks can use regulatory capture and lobbying to be allowed to increase their loans (and hence profit) and ignore the risks. Again, the bankers individually may not care about the risks to the bank as long as they personally get wealthy.
All this used to work because bankers cared about doing the right thing and the company had a "self"-interest in continuing. I think that has changed for many bankers.