Credit crunch

A sudden tightening in the supply of lending

In detail

Banks fearing losses tighten their terms, and companies and households find borrowing hard to obtain. The question becomes whether credit is available at all rather than what it costs, so rate cuts alone rarely fix it. Investment and home purchases are postponed, lengthening the downturn.

Example

In one crisis, growth in business lending fell from 10% year on year to below zero.

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