The phenomenon of credit rationing arises from the information asymmetry in the credit market. Information asymmetry leads to moral hazard and adverse selection in financial markets. Adverse selection in the credit market refers to information asymmetry before credit occurs, and borrowing enterprises know themselves and their projects better than banks. Borrowing enterprises clearly know their own assets and liabilities, profitability and default risk, while banks can only rely on the statements and materials provided by enterprises to distinguish the types and average risks of enterprises and loan projects, which is not as good as borrowers' understanding of their market environment, financial situation and repayment willingness. In the credit market with asymmetric information, banks issue loans at a uniform interest rate. When banks raise interest rates to keep interest rates high, those borrowers who are most willing to sign loan contracts are those who are least likely to repay. Borrowers with lower project risk are unwilling to bear higher interest costs and withdraw from the credit market, that is, adverse selection appears. At this time, the average default risk of borrowers in the credit market increases, while the expected return of banks decreases. Moral hazard in credit market refers to information asymmetry after credit occurs. Because the borrower has the right to control and use funds, while the lender only has part of the right to benefit from funds, there is objectively an opportunistic behavior that the borrower damages the lender, that is, the borrower changes the possible investment direction after borrowing and engages in high-risk and high-yield projects. If its high-risk project is successful, its income will be greatly increased or even unlimited at a given bank loan interest rate level, while if its high-risk project fails, the borrower's cost is limited under the limited responsibility system. Both of the above phenomena will prompt banks to implement credit rationing instead of raising interest rates to meet all loan requirements.

Assume that the bank's behavior conforms to the assumption of rational economic man, that is, the bank pursues profit maximization. According to the analysis of Stiglitz and Weiss, there are two effects of interest rate in the decision of bank loan income, namely "adverse selection effect" and "moral hazard effect". These two influences have a negative effect on the bank's income. When the interest rate level is low, the adverse selection effect and moral hazard effect are small, and the income brought by the increase of interest rate is higher than the negative income brought by these two effects, thus improving the total income level of banks; When the interest rate level rises to a critical point, the adverse selection effect and moral hazard effect brought by the interest rate rise will produce more negative returns than those brought by the interest rate rise, so the total income of banks will decrease. The relationship between the loan interest rate and the bank's expected income is shown in the following figure. It can be seen that banks have an optimal interest rate level. For loans exceeding this interest rate level, banks would rather implement credit rationing than raise interest rates.