Know What is Credit Crunch?

Credit crunch is also known as credit squeeze, credit crisis or financial crisis. It is defined as the reduction in availability of loan or rapid tightening of conditions to obtain loans from any financial institution. It is condition, when banks and investors become wary to grant loans or funds to individuals or business houses as the price of debt products goes high.

How does credit crunch occur?
Credit crunch is usually the after effects of recession. A credit crunch nearly makes it impossible for companies to borrow because the lenders usually charge high rate of interest. A credit crunch occurs when there is lack of funds available in the financial market. During this time the lenders have limited fund available to lend to the borrowers.

What are the reasons of credit crunch?

During the period of credit crunch the lending institutions generally suffer huge losses from their previous transactions. This occurs as the defaulters fail to repay debts and thus their properties are foreclosed. Generally the banks gives loan to the borrowers against a mortgage property. If the borrowers default then, those properties are sold off so that, the banks recovers their bad debts.

The bank suffer huge losses if the value of the mortgaged property falls. The banks are required to maintain a certain level of liquidity but due to economic meltdown their capital position is reduced. Therefore, the banks are unable to lend to the borrowers.

Credit crunch can also occur when regulatory bodies increase the capital requirement for financial bodies. Most of the financial institutions are required to maintain set amount of liquidity which is based on risk-weighted level of assets. If this level increases most of the banks need to increase their capital reserves. To comply to this norm, the banks reduce the availability of loans for organizations and individuals.

Another reason for credit crunch is that, if the banks perceive greater risk in the market they will often increase their lending rates to overcome this risk. This increased rate of interest makes it almost impossible for borrowers to avail loans.

Overall, credit crunch has ill effects on economy because it hinders in economic growth through decreased capital liquidity and reduced opportunities to borrow money. Lending or availing credit is part of business, it is way through which most of the financial institutions expand their operations. If a credit crunch is coupled with recession it often leads to bankruptcies for many corporate organizations.

Root of the global economic crisis

Long time before falling in late September 2002, Baker is correct that the housing bubble collapse Fannie Mae and Freddie Mac and other financial institutions would be the existence of risk has been predicted. It's often said during the first week financial crisis is that this problem only by inspection of the Deputy Chief debt. Baker, as often, however, the deputy chief stressed that all mortgage 20 trillion U.S. dollars affects only a very broad problem of a factor is caused by the U.S. housing market: first only the first sub-sector, the housing market bubble to influence the fall of the show.

Wall Street, bankruptcy and the government to save the rash was really bad. And analysts that this will also mark the end of the financial crisis rather than a group, but so is breaking cardinal rules:
No. 1: The market is always unpredictable.
No. 2: This is not the time to market.


However, when the economic crisis has hit the bottom are three ways to find out. The free special report, clearly, the three banks should be watching the Federal Reserve and Wall Street's real economy indicators are showing.

Also how a virtual standstill for our country's economy shows a knot to untie. Credit problems can happen to anyone. Some of us forward in life, some kind of financial crisis without the need to move the can. Temporary loss of job or stop working on and often juggle bill payments and interest for the delay in the leadership is needed. Any interruption in income is for families to quickly Paycheck hardly a struggle for economic existence, which can become.

Banking Crisis - The Major Financial Crisis

The economic crisis in the financial institutions or assets suddenly loses a lot in this price a wide variety of conditions have been applied to. 19th and early 20th century, the number of terror with the banking crisis, and was associated with a combination of terror in many Recessions. Other conditions often bag and other financial bubble financial crisis, currency crisis and sovereign default distribution is called.

How many economists for the development and how to provide the financial crisis can be avoided on principle? This little consensus,however,and economic crisis in this world is always an event.


When a bank,it is called a bank run by depositors of Withdrawals suffers a sudden wave. Since the banks credit to lend to the most if a course in bankruptcy in May, many depositors lose their savings due to the bank before you leave if all the tanks was thinking all of a sudden, it is difficult for them to pay if not covered by deposit insurance. The banks of a broad systemic banking crisis or a banking panic are the situation said. Sufficient resources are available because they have a situation where the bank provides a comprehensive, but to lend to banks, worried about, is called a credit often are reluctant.

In 1931 and 2007 in the Northern Rock bank in the USA are examples from the bank management. Collapse of Bear Stearns in 2008, sometimes even a bank run, but Bear Stearns said in comparison to a commercial bank is an investment bank. America's savings and loans of the 1980s led to a strengthening of the credit crisis of 1990-1991 for the U.S. slowdown is considered an important factor.