Credit crunch

Definition:

A shortage of available credit for businesses and consumers. This situation could arise when lenders are reluctant to lend because of uncertainty of defaults or are willing to lend only at high interest rates thus making it difficult for businesses and consumers to secure credit. The term became popular the financial crisis that began in 2007 when a large number of homeowners either defaulted or were expected to default on mortgages, leading to great stress on the market in which these securitized loans were traded. The ensuing constriction in liquidity caused lenders to cut back on loans resulting in a credit crunch.

Investing Essentials


Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

Term of the Day

Currency Exchange Risk

Uncertainty about the rate at which revenues or costs denominated in one currency can be converted into another currency.

Subscribe to the Term of the Day via email Get the Term of the Day in your inbox!


Create your free portfolio