Credit Easing

DEFINITION of 'Credit Easing'

Policy tools used by central banks to make credit more readily available in the event of a financial crisis, such as the one experienced in 2007-2008. In the United States, the policy tools, as described by Federal Reserve Chairman Ben Bernanke in early 2009, include "lending to financial institutions, providing liquidity directly to key credit markets and buying longer-term securities."


The Fed implemented these tools because it needed a way to make interest rates go down and make credit more available to individuals and businesses even though the federal funds rate was already near zero.

BREAKING DOWN 'Credit Easing'

Credit easing entails an expansion and focus on the asset side of the Federal Reserve's balance sheet. This, according to Ben Bernanke, differentiates credit easing from the policy of quantitative easing used by Japan's central bank from 2001 to 2006. Although both methods involve the expansion of the central bank's balance sheet, quantitative easing focused on the liability side of the Bank of Japan's balance sheet.

RELATED TERMS
  1. Bank Credit

    The amount of credit available to a company or individual from ...
  2. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases ...
  3. Available Credit

    The unused portion of an open line of credit, such as a credit ...
  4. Monetary Policy

    Monetary policy is the actions of a central bank, currency board ...
  5. Trade Credit

    An agreement where a customer can purchase goods on account (without ...
  6. Key Rate

    The specific interest rate that determines bank lending rates ...
Related Articles
  1. Investing News

    Quantitative Easing: Does It Work?

    This controversial monetary policy has been used by some of the world's most powerful economies. But does it work?
  2. Economics

    Quantitative Easing is Now a Fixture, Not a Temporary Patch

    Rather than being a temporary patch, QE is now a fixture in global economic policy, for good or for bad.
  3. Economics

    How Unconventional Monetary Policy Works

    Unconventional monetary policy, such as quantitative easing, can be used to jump-start economic growth and spur demand.
  4. Personal Finance

    The Banking System: Federal Reserve System

    ByStephen D. Simpson, CFA The central bank of the United States is the Federal Reserve System. The Federal Reserve System came into being in 1913, after the passage of the Federal Reserve Act ...
  5. Economics

    The Federal Reserve: The FOMC Rate Meeting

    So far we've learned about the structure of the Federal Reserve and its duties, the Federal Open Market Committee (FOMC), the tools of monetary policy and the federal funds rate. Now we're going ...
  6. Economics

    7 Misconceptions About The Federal Reserve

    There are many fallacies about the Fed. The following misconceptions are among the most popular.
  7. Economics

    Regional Banks Give The Fed A National Perspective

    We all know that the Federal Reserve utilizes monetary policy to control the economy, but what do the 12 regional Federal Reserve Banks do?
  8. Economics

    Why Deflation Is The Fed's Worst Nightmare

    The measures taken by central banks seem to be winning the battle against deflation, but it is too early to tell if they have won the war.
  9. Credit & Loans

    The Basics Of Lines Of Credit

    Lines of credit are potentially useful hybrids of credit cards and normal loans. Learn how a line of credit can help (and hurt) your finances, and how to find the best one to suit your needs. ...
  10. Bonds & Fixed Income

    Abenomics Vs. Quantitative Easing: Which Works Best?

    Abenomics and QE are versions of extraordinary stimulus measures initiated by the Japanese government and the U.S government, respectively.
RELATED FAQS
  1. In what instances is quantitative easing used?

    Discover when, how and why the Federal Reserve and other central banks turn to quantitative easing to stimulate economic ... Read Answer >>
  2. What impact does quantitative easing have on consumers in the U.S.?

    Dig deeper into the Federal Reserve's quantitative easing policies and what potential impacts they may have on American consumers. Read Answer >>
  3. What are the most important interest rates?

    Learn about the most important interest rates in the economy; the Federal funds rate and discount rate are set by the Federal ... Read Answer >>
  4. Is it possible to have a credit limit that's too high?

    Avoid these pitfalls when working with high credit limits, and learn how to increase your credit score by increasing your ... Read Answer >>
  5. What are the implications of a high Federal Funds Rate?

    Learn the implications of a high federal funds rate, which include constriction of the money supply, a stronger dollar and ... Read Answer >>
  6. What are some good alternatives to taking out a line of credit?

    Read more about how opening a line of credit might not be the best answer for you and determine available alternatives if ... Read Answer >>
Hot Definitions
  1. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  2. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  3. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  4. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  5. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center