Why capped at a lower end
The book talk about the credit rationing from the bank(the lender) perspective.
「In the case of credit rationing, default risk is a plausible explanation: raising interest rates above a certain threshold would lead the borrower to gamble on increasingly risky projects, since the losses are capped at the lower end. Thanks to limited liability, the borrower might not be forced to turn over to his creditors an amount greater than his marketable assets. The resulting model might be presented as a deduction from first principles. That, after all, is the accepted view of economists’ scientific method. But in fact, the thinking that produced the model involved a large element of induction.」
From the first sentence:
Why the bank raising the interest rate, the borrower lost are capped at the lower end"
I do think the higher interest rates, the more borrower need to pay, why would be lower?