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Credit crunch is a term used to describe a sudden reduction in the general availability of loans (or "credit"), or a sudden increase in the cost of obtaining loans from the banks.
There are a number of reasons why banks may suddenly increase the costs of borrowing or make borrowing more difficult. This may be due to an anticipated decline in value of the collateral used by the banks when issuing loans, or even an increased perception of risk regarding the solvency of other banks within the banking system. It may be due to a change in monetary conditions (for example, where the central bank suddenly and unexpectedly raises interest rates or reserve requirements) or even may be due to the central government imposing direct credit controls or instructing the banks not to engage in further lending activity.
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See also
Bibliography
- George Cooper, The Origin of Financial Crises (2008: London, Harriman House) ISBN 1905641850
- Graham Turner, The Credit Crunch: Housing Bubbles, Globalisation and the Worldwide Economic Crisis (2008: London, Pluto Press), ISBN 9780745328102
- Larry Elliott, The Gods That Failed: How Blind Faith in Markets Has Cost Us Our Future, (2008: The Bodley Head), ISBN 9781847920300
- Gerry Gold & Paul Feldman, A House of Cards - from fantasy finance to global crash. (2007: London, Lupus Books), ISBN 9780952345435