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".

BREAKING DOWN '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. Monetary Policy

    The actions of a central bank, currency board or other regulatory ...
  2. Discount Rate

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

    The total amount of a currency that is either circulated in the ...
  4. Fed Model

    A model thought to be used by the Federal Reserve that hypothesizes ...
  5. Push On A String

    When monetary policy cannot entice consumers into spending more ...
  6. Federal Reserve System - FRS

    The central bank of the United States. The Fed, as it is commonly ...
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

    Defining Cost-Push Inflation

    Cost-push inflation is caused by an increase in the cost of production, due to higher prices for raw materials or labor.
  6. Fundamental Analysis

    Explaining the Central Limit Theorem

    Central limit theorem is a fundamental concept in probability theory.
  7. Economics

    Calculating the Consumption Function

    The consumption function shows the level of consumer spending as it relates to disposable income.
  8. Fundamental Analysis

    Examining Mexico's Trillion-Dollar GDP

    Examining the gross domestic product growth and composition of Mexico, the second largest economy in Latin America
  9. Fundamental Analysis

    What Causes Inflation in the United States

    Inflation is the main catalyst behind U.S monetary policy. But what causes this phenomenon of sustained rising prices? Read on to find out.
  10. Term

    Understanding Net Exports

    Net exports are the difference between a country’s exports and imports.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. Who decides when to print money in the US?

    The U.S. Treasury decides to print money in the United States as it owns and operates printing presses. However, the Federal ... Read Full Answer >>
  4. When has the United States run its largest trade deficits?

    In macroeconomics, balance of trade is one of the leading economic metrics that determines the trading relationship of a ... Read Full Answer >>
  5. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  6. How does the bond market react to changes in the Federal Funds Rate?

    The bond market is highly sensitive to changes in the federal funds rate. When the Federal Reserve increases the federal ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Recession

    A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, ...
  2. Bubble Theory

    A school of thought that believes that the prices of assets can temporarily rise far above their true values and that these ...
  3. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  4. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  5. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  6. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
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!