Capital Crunch And Credit Crunch As Well As How They Contribute To Financial Crisis ?

[abeer21]

Differentiate Capital Crunch and Credit Crunch as well as how they contribute to financial crisis ?

[woofgang]

a please and thank you might help

[abeer21]

Please can anyone help me with this question :)

[Buenchico]

We're not going to do all your homework for you but 'capital crunch' refers to a situation where a bank's assets are (or could easily become) less than those that regulators require to ensure that the bank isn't at risk of failing. It can occur where the banks own shares fall substantially in value or where the value of shares and securities held by the bank fall similarly.

If a bank's assets aren't as high as regulators require then, as well as seeking extra funding, banks tend to reign in on loaning money to investors. That results in a situation where there's less credit available than that being sought, which is called a 'credit crunch'.

A capital crunch can see investors wary of putting money into banks and a subsequent credit crunch can see companies unable to develop their businesses because they can't get loans. In some cases that might result in businesses failing altogether.