Necessary, because if it were not true — if the downturn DID cause a significant decrease in the total amount of money available for banks to lend — that raises the possibility that making the loanmaking standards more relaxed won’t get banks to lend more. They might not have enough money to lend more. (A) is necessary to eliminate another factor that could otherwise keep banks from lending more.

Not necessary, because even if the tighter regulatory standards WAS a cause of the downturn, the banks might still respond by lending more if the regulatory standards were relaxed.

Not necessary, because what matters is whether relaxing the standards will lead to banks lending more. The original reason for tightening the standards doesn’t have an impact on the potential effect of relaxing the standards.

Not necessary, because even if SOME economic downturns are accompanied by a significant decrease in money loaned by banks, the issue is what happens after relaxing of loanmaking standards. A change in loanmaking standards might lead to more loans, even if the prior downturn was accompanied by a decrease in loanmaking. (Also, (D) arguably contradicts what we know from the premise, because the recent downturn was accompanied by a decrease in loans.)

Not necessary, because what would “compensate for the effects of the downturn” is irrelevant to the argument. The argument concerns whether banks will loan more money if loanmaking standards are relaxed. The author never argues that the increased loanmaking would make up for the harmful effects of the downturn.