Credit Crunch


DEFINITION of 'Credit Crunch'

An economic condition in which investment capital is difficult to obtain. Banks and investors become wary of lending funds to corporations, which drives up the price of debt products for borrowers.

BREAKING DOWN 'Credit Crunch'

Credit crunches are usually considered to be an extension of recessions. A credit crunch makes it nearly impossible for companies to borrow because lenders are scared of bankruptcies or defaults, which results in higher rates. The consequence is a prolonged recession (or slower recovery), which occurs as a result of the shrinking credit supply.

  1. Lost Decade

    The 1990s for Japan, and the first decade of the current millennium ...
  2. Financing Squeeze

    A situation in which would-be borrowers find it difficult to ...
  3. Debt

    An amount of money borrowed by one party from another. Many corporations/individuals ...
  4. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  5. Bankruptcy

    A legal proceeding involving a person or business that is unable ...
  6. Economy

    The large set of inter-related economic production and consumption ...
Related Articles
  1. Personal Finance

    Examining Credit Crunches Around The World

    Market tops and bottoms have proliferated the financial markets throughout history. Learn how countries dealt with these tough economic periods.
  2. Insurance

    The Causes And Effects Of Credit Shocks

    These shocks cycle through history. Find out what you need to know to avoid the alarm bells.
  3. Investing Basics

    What Is A Corporate Credit Rating?

    Is the bond you're buying investment grade, or just junk? Find out how to check the score.
  4. Bonds & Fixed Income

    Junk Bonds: Everything You Need To Know

    Don't be fooled by the name - junk bonds may be for you if you know how to analyze them.
  5. Forex Education

    The Credit Crisis And The Carry Trade

    When boom times turned to bust, these trades proved devastating for traders and the broader markets.
  6. Bonds & Fixed Income

    Are High-Yield Bonds Too Risky?

    Despite their reputation, the debt securities known as "junk bonds" may actually reduce risk in your portfolio.
  7. Retirement

    The Bright Side Of The Credit Crisis

    Find out how this tough economic period can be a learning experience for all.
  8. Personal Finance

    The Lost Decade: Lessons From Japan's Real Estate Crisis

    Find out what America can learn from Japan's liquidity trap and credit crunch.
  9. Budgeting

    Five Strategies For Surviving Tough Times

    Cruise through a slowing economy - even when others are going off the rails.
  10. Personal Finance

    The Fuel That Fed The Subprime Meltdown

    Take a look at the factors that caused this market to flare up and burn out.
  1. How does a credit crunch occur?

    A credit crunch occurs when there is a lack of funds available in the credit market, making it difficult for borrowers to ... Read Full Answer >>
  2. Who decides to print money in Canada?

    In Canada, new money comes from two places: the Bank of Canada (BOC) and chartered banks such as the Toronto Dominion Bank ... Read Full Answer >>
  3. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  4. Who decides when to print money in India?

    The Reserve Bank of India, or RBI, manages currency in India. The bank's additional responsibilities include regulating the ... Read Full Answer >>
  5. Is Japan an emerging market economy?

    Japan is not an emerging market economy. Emerging market economies are characterized by low per capita incomes, poor infrastructure ... Read Full Answer >>
  6. How is the Federal Reserve audited?

    Contrary to conventional wisdom, the Federal Reserve is extensively audited. Politicians on the left and right of a populist ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  2. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  3. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  4. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  5. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  6. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!