Financing Squeeze

AAA

DEFINITION of 'Financing Squeeze'

A situation in which would-be borrowers find it difficult to obtain funds because lenders are afraid or unable to make loans. A financing squeeze can also occur if credit is available, but only at a price that is unaffordable for most potential borrowers. A severe financing squeeze was a major component of the Great Recession of 2008.

INVESTOPEDIA EXPLAINS 'Financing Squeeze'

Causes of a financing squeeze, also known as a credit crunch, include increased lending risk (for example, because many borrowers have been defaulting on their loans) and/or increased capital requirements (when governments force banks to hold more money in their reserves). A financing squeeze can affect all types of potential borrowers, from large corporations to small businesses to individuals.

RELATED TERMS
  1. Default

    1. The failure to promptly pay interest or principal when due. ...
  2. Recession

    A significant decline in activity across the economy, lasting ...
  3. Double-Dip Recession

    When gross domestic product (GDP) growth slides back to negative ...
  4. Default Risk

    The event in which companies or individuals will be unable to ...
  5. Credit Risk

    The risk of loss of principal or loss of a financial reward stemming ...
  6. Credit Crunch

    An economic condition in which investment capital is difficult ...
RELATED FAQS
  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. What is the difference between a bank's liquidity and its liquid assets?

    A company's liquid assets can easily be converted into cash to meet financial obligations on short notice. Liquidity is the ... Read Full Answer >>
  3. How are risk weighted assets used to calculate the solvency ratio in regulatory capital ...

    Risk-weighted assets are the denominator in the calculation to determine the solvency ratio under the provisions of the Basel ... Read Full Answer >>
  4. What happens when a company defaults on its commercial paper obligations?

    As a practical matter, the Issuing and Paying Agent, or IPA, is responsible for reporting the commercial paper issuer's default ... Read Full Answer >>
  5. Can small investors buy collateralized mortgage obligations (CMOs)?

    Collateralized mortgage obligations (CMOs), which are pools of mortgage-backed securities (MBS), are available to smaller ... Read Full Answer >>
  6. In what ways does Bayesian probability support the probability default model when ...

    During the European debt crisis, several countries in the Eurozone were faced with high structural deficits, a slowing economy ... Read Full Answer >>
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. Bonds & Fixed Income

    5 Signs Of A Credit Crisis

    These indicators can illuminate the depth and severity of problems in the credit markets.
  3. Retirement

    The Bright Side Of The Credit Crisis

    Find out how this tough economic period can be a learning experience for all.
  4. Options & Futures

    Dialing In On The Credit Crisis

    Would a similar crisis have occurred if iPhone investors were offered the same loan options as homeowners?
  5. Mutual Funds & ETFs

    The 2007-08 Financial Crisis In Review

    If you don't know how the recession began, read on to learn more.
  6. Investing

    Market Crisis: Does Diversification Still Work?

    If you still aren’t sold on the benefits of international diversification, you may object that: Diversification didn’t work during the last market crisis.
  7. Investing Basics

    The Dodd-Frank Wall Street Reform Act

    The Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly called Dodd-Frank, was passed in 2010. The goal of the act is to prevent another great recession like that of 2008, which ...
  8. Investing

    3 Major Risks For Annaly’s Investors

    Thanks to its double-digit dividend yield, Annaly Capital Management has long been a favorite among income-seeking investors.
  9. Credit & Loans

    Which Is One Of The Nation’s Safest Banks?

    While there's no such thing as a completely safe bank stock, it's hard to find one that comes closer to the mark than New York Community Bancorp .
  10. Economics

    Afraid Of A New Financial Crisis?

    It may be time for the U.S. to adopt a model for financial companies that better deters risky financial behavior.

You May Also Like

Hot Definitions
  1. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  2. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  3. 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 ...
  4. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  6. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
Trading Center