credit crunch

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Credit crunch

A shortage of available credit for businesses and consumers. This situation could arise when lenders are reluctant to lend because of uncertainty of defaults or are willing to lend only at high interest rates thus making it difficult for businesses and consumers to secure credit. The term became popular the financial crisis that began in 2007 when a large number of homeowners either defaulted or were expected to default on mortgages, leading to great stress on the market in which these securitized loans were traded. The ensuing constriction in liquidity caused lenders to cut back on loans resulting in a credit crunch.

credit crunch

A period during which borrowed funds are difficult to obtain and, even if funds can be found, interest rates are very high. Credit crunches were particularly severe before 1980 when the ceilings on interest rates that financial institutions could pay resulted in a drying up of deposits.
References in periodicals archive ?
Headwinds from significant fiscal consolidation coupled with the repercussions of a tighter monetary policy and liquidity squeeze are two of the main challenges that banks in the Middle East and North Africa region will have to grapple with going forward, according to the MENA Financials--Selective Opportunities report by Arqaam Capital.
Griffiths and Winters (2005a) find that one-month CP rates increase at the year-end in a pattern that they suggest is consistent with a year-end preferred habitat for liquidity (liquidity squeeze).
Fitch cut its economic growth forecast for Greece to 0.5 percent this year from 1.5 percent in January, citing the liquidity squeeze faced by firms due to increased government arrears to suppliers and bank funding strains.
The management of the bank said in its report that the activity of the STB took place during the first six months of 2012 in a context characterized mainly by a liquidity squeeze at the sector level.
Traders said on Friday they anticipate the central bank to lower banks' RRR soon to ease a recent liquidity squeeze, triggered by regulatory requirements and a large initial public offering.
"Since the phase-out of subsidies, airlines have been experiencing a liquidity squeeze and the number ofgrounded planes is on the increase."
Starwood Hotels and Resorts Worldwide's plans to expand in Europe through management and franchise deals has been slowed by a liquidity squeeze that has caused some hotel developers to put projects on ice, an executive said.
If investors refuse to buy the debt on any terms, even a fiscally prudent government could find itself in a liquidity squeeze and become insolvent.
The Fed would then cause a liquidity squeeze and so distort asset prices as to make much construction, sizable amounts of other investment, and some consumption goods unaffordable (and thus unprofitable to produce).
Oputu reiterated that the N200 billion fund was to tackle the prevailing liquidity squeeze so as to provide credit access to operators for the restructuring of moribund factories, among others.
His colleague Ewald Nowotny said the ECB was committed to offering extra funds to ensure there is no liquidity squeeze.