• One reason for the credit crunch is that bankers fear that regulators are more likely to classify loans as bad.
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Japan experienced a major credit crunch in the late nineties.
Credit crunches are usually considered to be an extension of recessions. A credit crunch makes it nearly impossible for companies to borrow because lenders are scared of bankruptcies or defaults, which results in higher rates. The consequence is a prolonged recession (or slower recovery), which occurs as a result of the shrinking credit supply.
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