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Level 48

Credit Crunch


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Background
:Defined: A severs shortage of money or credit"
Early years of the 21st Century
:US interest rates low - 1%
Causes
:Traditional banking model replaced by leverage financing.
Start
:2004 - 2006 US interest rates increased from 1% to 5.35%.
During the Crisis
:High level of default , house prices falling.
In the UK
:Northern Rock asks for emergency financial support from Bank of England 13th September 2007.
Worldwide
:1st October 2007 - Swiss bank first major bank to announce sub prime losses - $3.4bn.
Northern Rock - Nationalised.
Big losers in the UK
In the US
Bear Stearns - 5th largest US bank bought for $240m - worth $18bn a year earlier.
Overview
:Periods of low interest rates led to a debt fuelled boom.