A “credit crunch” refers to a sharp restriction in credit supply or availability, not merely any period when borrowing declines. Federal Reserve discussion emphasizes the difficulty of separating lender-side supply restraint from weaker loan demand or deteriorating borrower quality.
ReviewedEvidence1 sourceSectionPhrases & Idioms
Quick answer
A credit crunch is a substantial restriction in the supply or availability of credit beyond what prevailing interest rates and ordinary borrower demand alone would imply.
Key details
Canonical Formcredit crunch
Core MeaningA credit crunch is a substantial restriction in the supply or availability of credit beyond what prevailing interest rates and ordinary borrower demand alone would imply.
Further guidance
History Boundary
Current authoritative financial meaning is published without claiming an exact inventor, coinage date, or absolute first use.
Meaning
A credit crunch is a substantial restriction in the supply or availability of credit beyond what prevailing interest rates and ordinary borrower demand alone would imply.
Usage Boundary
A fall in lending is not automatically a credit crunch: weaker demand, weaker borrower creditworthiness, and lender-side supply restraints must be distinguished.
Sources and evidence
Sources are shown with the role they play in this guide. Historical or style-sensitive claims are kept within the evidence boundary described above.
A “credit spread” compares the yield on credit-risky debt with a benchmark yield of comparable maturity. Federal Reserve discussion notes that corporate-bond spreads compensate for default and liquidity risks rather than representing a pure default probability.
A “liquidity crunch” is a period when cash or readily available funding becomes scarce and normal borrowing, trading, or payment needs become harder to meet. A liquidity crunch is not automatically the same as insolvency or a credit crunch, although severe liquidity stress can interact with solvency concerns and tighter credit conditions.
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