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Banks or financial institutions commonly do asset-based loaning.
In asset-based loaning, they accept assets as the security and loan cash against it (credit to esteem proportion).
The bigger the worth of the asset, the more will be the advance endorsed against it.

Banks keep collateral to safeguard their interests. If a loan becomes nonperforming, the banks will take hold of that asset & will sell it in the market to recover their dues.

By taking collateral, banks feel safer and can lend a larger amount of money at lower interest rates as compared to unsecured loans.

An unanticipated decline in the price level increases the risk profile of the assets of the bank, i.e. loans they have given become riskier as the value of collateral taken by them sharply falls.

Therefore, this situation decreases the liquidity levels as it becomes difficult for the firms to know the ability to pay off the bills.

So, a decline in the price level leads to a decline in lending money.