Credit Crunch

A credit crunch, also known as a credit squeeze or credit crisis, occurs when there is a significant decline in the general availability of loans or credit, or when the terms and conditions required to obtain credit become much stricter. This can be caused by a variety of factors, including increased risk aversion among lenders, a downturn in economic conditions, or regulatory changes.

During a credit crunch, businesses and consumers find it more difficult to borrow money, which can lead to reduced investment, spending, and economic activity. This can further exacerbate economic downturns and lead to a recession. Credit crunches can result from banking crises, where financial institutions face liquidity issues or significant losses, leading them to cut back on lending. Governments and central banks may intervene during a credit crunch to restore liquidity and confidence in the financial system.

1. The 2007-2008 global financial crisis, where banks significantly tightened lending due to large losses and liquidity concerns.
2. A sudden increase in loan defaults leading banks to reduce the amount of credit they extend to consumers and businesses.
3. Economic sanctions on a country causing its banking sector to restrict credit availability.