This varies depending on the market but many banks in Europe at least do retain large parts of their loan books, in part because the securitisation market was a

This varies depending on the market but many banks in Europe at least do retain large parts of their loan books, in part because the securitisation market was always and still is less developed here. Banks can and do routinely turn away higher grade borrowers with no other relationship angle (ie no short or long-term profitable cross-sell) because those loans are unprofitable for them and they can only make money on riskier credits. More broadly, sub-zero base rates are a real problem for banks and may actually hurt rather than help credit creation (since banks are likely to do less of something which is less profitable). The reason they're a problem is that most banks have a large portion of their funding in the form of deposits and passing on negative rates to depositors is very very hard - in my experience only the very largest (billions of dollars) overnight deposits get charged negative rates. All this does contribute towards the search for yield phase of the credit cycle (CDOs were just a part of that - everyone likes to blame them but they didn't cause the credit cycle which is really a "natural" phenomenon, although they did act to obscure the amount of leverage in the system and thus the likely size of the damage when the bubble burst). Everyone across the board wants to take more risk because they can't make their numbers stack up with the less risky part of the credit spectrum. As a result over the long term some credit becomes mispriced and when there's a wave of defaults credit investors wind up losing money overall then we start the cycle again.