Loose Credit

AAA

DEFINITION of 'Loose Credit'

The practice of making credit easy to come by, either through relaxed lending criteria or by lowering interest rates for borrowing. Loose credit often refers to central banking monetary policy and whether it is looking to expand the money supply (loose credit) or contract it (tight credit).

Loose credit environments may also be called "accommodative monetary policy" or "loose monetary policy".

INVESTOPEDIA EXPLAINS 'Loose Credit'

The U.S. markets were considered a loose credit environment between 2001 and 2006, as the Federal Reserve lowered the Fed funds rate, and interest rates reached their lowest levels in more than 30 years. This allowed the economy to expand, as more people were able to borrow. This led to increased asset investment and spending on goods and services.

Central banks differ on the mechanisms they have at their disposal to create loose or tight credit environments. Most have a central borrowing rate (such as the Fed funds rate or discount rate) that affects the largest banks and borrowers first; they in turn pass the rate changes along to their customers. The changes eventually work their way down to the individual consumer via credit card interest rates, mortgage loan rates and rates on basic investments like money market funds and certificates of deposit (CDs).

RELATED TERMS
  1. Discount Rate

    The interest rate charged to commercial banks and other depository ...
  2. Monetary Base

    The total amount of a currency that is either circulated in the ...
  3. Fool In The Shower

    The notion that changes or policies designed to alter the course ...
  4. Fed Model

    A model thought to be used by the Federal Reserve that hypothesizes ...
  5. Monetary Policy

    The actions of a central bank, currency board or other regulatory ...
  6. Federal Reserve System - FRS

    The central bank of the United States. The Fed, as it is commonly ...
RELATED FAQS
  1. Does raising the minimum wage increase inflation?

    There are conflicting views on whether raising the minimum wage increases inflation. Tied to this is the question of what ... Read Full Answer >>
  2. How do open market operations affect the money supply of an economy?

    The open market operations conducted by the Federal Reserve affect the money supply of an economy through the buying and ... Read Full Answer >>
  3. What is the difference between the cost of capital and the discount rate?

    The cost of capital refers to the actual cost of financing business activity through either debt or equity capital. The discount ... Read Full Answer >>
  4. What risks does a business owner face under a business structure with unlimited liability?

    The risks that a business owner faces under a business structure with unlimited liability are literally unlimited, but they ... Read Full Answer >>
  5. What is affected by the interest rate risk?

    Interest rate risk is the risk that arises when the absolute level of interest rates fluctuate. Interest rate risk directly ... Read Full Answer >>
  6. How does the market share of a few companies affect the Herfindahl-Hirschman Index ...

    In economics and commercial law, the Herfindahl-Hirschman Index (HHI) is a widely used measure that indicates the amount ... Read Full Answer >>
Related Articles
  1. Insurance

    Credit Card Perks You Never Knew You Had

    From car insurance to concert tickets, be sure to take advantage of whatever your card has to offer.
  2. Personal Finance

    How The U.S. Government Formulates Monetary Policy

    Learn about the tools the Fed uses to influence interest rates and general economic conditions.
  3. Forex Education

    Get To Know The Major Central Banks

    The policies of these banks affect the currency market like nothing else. See what makes them tick.
  4. Economics

    The Importance Of Inflation And GDP

    Learn the underlying theories behind these concepts and what they can mean for your portfolio.
  5. Economics

    Explaining Financial Analysis

    Financial analysis is a general term that refers to using financial data to make business and investment decisions.
  6. Economics

    When Global Economies Converge

    The Divergences in global economic look very much like an explanation for what happened last year, though market observers continue to tout about it.
  7. Investing

    Do Record Stock Highs Signal A Top?

    Despite higher rates, U.S. stocks have been posting new records in recent weeks, despite investor concerns about slowing U.S. corporate profit growth.
  8. 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.
  9. Economics

    West Coast Vs. East Coast Economy

    The East’s focus on finance and banking contrasts the West’s drive toward technological innovation. But one thing is clear--each knows it needs the other.
  10. Investing Basics

    What is a Nominal Value?

    The nominal value of a security, such as a stock or bond, remains fixed for the duration of its life.

You May Also Like

Hot Definitions
  1. Fracking

    A slang term for hydraulic fracturing. Fracking refers to the procedure of creating fractures in rocks and rock formations ...
  2. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  3. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  4. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  5. Covered Call

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

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
Trading Center