Under deflationary conditions banks don't lend out because banks too want to get the above market returns of deflationary cash. That is why the amount of excess reserves (unlent money) shot up during the last financial crisis. This is a bit of a simplification. You also have to take into account risk and liquidity. Banks or anyone else won't lend out or invest unless the money has a lower return than market investment or that the volatile money gets too risky to hold. Eventually money gets pushed towards enough volatility that some level of investment returns. This might help avoid complete economic ruin.