A credit crunch arises due to contractions in the credit/lending market created by financial institutions owing to a deficiency of funds. When an economy suffers a recession, lenders become apprehensive of lending money to companies due to bankruptcies or defaults.

What happened during the credit crunch?

At its simplest, the crunch is a crisis caused by banks being too nervous to lend money to us, businesses or each other. The crunch occurred because years of lax lending inflated a huge debt bubble as people borrowed cheap money and ploughed it into property.

Why does the credit crisis happen?

A credit crisis is caused by a trigger event such as an unexpected and widespread default on bank loans. A credit crunch becomes a credit crisis when lending to businesses and consumers dries up, with cascading effects throughout the economy.

How does a credit crunch affect a company?

Often an extension of a recession, a credit crunch makes it nearly impossible for companies to borrow because lenders are scared of bankruptcies or defaults, resulting in higher rates. A credit crunch refers to a decline in lending activity by financial institutions brought on by a sudden shortage of funds.

How is a credit crunch related to a recession?

Often an extension of a recession, a credit crunch makes it nearly impossible for companies to borrow because lenders are scared of bankruptcies or defaults, resulting in higher rates. A credit crunch often follows a period in which lenders are overly lenient in offering credit.

Why was there a credit crunch in 2009?

18 March 2009 The crunch occurred because years of lax lending inflated a huge debt bubble: people borrowed cheap money and ploughed it into property Two years ago markets were buoyant and traders were confident, but times have changed Recessions are a source of great stress and fear

What did the ECB do during the credit crunch?

The European Central Bank and the US Federal Reserve injected a combined $90bn into financial markets. For the ECB, it was its first intervention since the 9/11 terrorist attacks six years earlier.