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Running head: CREDIT CRUNCH
The Impact of “Credit Crunch” on the UK Stock Market During the 2008 Recession
The Impact of “Credit Crunch” on the UK Stock Market during the 2008 Recession
A credit crunch is an economic situation where lending activity by financial institutions
declines due to a sudden decrease in fund supply. In most instances, if a recession lasts longer, a
crunch makes it extremely difficult for firms to borrow since lenders such as banks are skeptical
about defaults and them being rendered bankrupt. This often results in lending institutions raising
their rates, making it impossible for borrowers to get funds. A credit squeeze affects both
individuals and businesses, leading to a ripple effect which spreads throughout the economy,
making other financial section to suffer much. Mortgage rates drop, causing investors to cut back
due to a decrease in capital.
During the 2008 financial crisis, a credit crunch arose following a period where lenders
were lenient in giving credit (Amadeo, 2019). Loans were awarded to borrowers with questionable
credibility, zero income research, or evidence and little or no deposit. As a result, the rate of default
rose to render ...
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