Credit crunch

from Wikipedia, the free encyclopedia

Under credit crunch , credit shortage (English credit crunch ) or credit crisis is understood in the industry an insufficient or lack of credit granted to non-banks by credit institutions that are not on the height of the lending rate and / or the lack of creditworthiness of the borrower based.

General

The credit business of the credit institutions consists in granting credit to a borrower if the borrower is able to meet the credit conditions (in particular creditworthiness , provision of any credit security , payment of credit interest and repayment ). Then, in macroeconomic terms, the demand for credit from borrowers also meets the corresponding credit supply from lenders , and the credit volume increases. The demand for credit is low when the interest rate level is too high, or the supply of credit is low when the creditworthiness of the borrower is too weak. If these two factors lead to a reduction in the supply of credit, there is no credit crunch. If the banks increase their lending rates or ration the supply of credit in response to an increased probability of default ( credit rationing ), this is due to demand and not due to the supply of credit.

However, there are also situations in which no loan agreement is concluded. This can be due to the credit seekers, if they are not creditworthy or creditworthy but cannot or do not want to meet the other credit conditions. On the other hand, the banks, as credit providers, can also find themselves in a position not to be able or unwilling to grant loans even though the borrowers could meet the loan conditions. This is the starting point of a credit crunch.

In 1991, for example, the American economist and (later) former President of the Federal Reserve Board Ben Bernanke described the credit crunch as an unusually strong reduction in the supply of credit in the economic cycle under consideration, which was neither due to the real lending rate nor to the quality of a borrower. The Council of Economic Advisers saw a credit crunch in 1992 if the credit supply is lower than would be expected taking into account the interest rate situation and the return on investment. For the Deutsche Bundesbank , the quantitative restriction on the supply of credit must be so significant that it creates a significant economic risk.

history

Already John Maynard Keynes described a temporary reluctance of banks to lend in the knowledge 1931, that part of their loans "frozen" ( English frozen was) and a larger latent credit risk deceptive as they are prepared voluntarily to wear. Therefore, the banks would be less willing than normal to grant new loans. Since then, the credit crunch has been seen as a normal part of a business cycle . Ben Bernanke saw the worsening of the Great Depression in the 1930s as being largely related to the credit crunch that was at work at the time. Even the stock market crash in 1929 was partially brought into causal connection. From the German banking crisis of 1931, Hans Gestrich († 1943) drew the conclusion that “the state must on no account let the collapse of the large commercial banks happen, because that would mean the destruction of part of the payment system and unforeseeable destruction in the economy - a sudden one Deflation shock for the entire economy. "

In 1978 the term credit rationing emerged , in which the demand for credit remained unmet even though the borrower would be willing to pay the market interest rate and meet the credit conditions. It was not until 1986 that the specialist literature no longer viewed the credit crunch as an integral part of an economic cycle, but as a specific credit crisis based on the clash of macroeconomic expansion with a lack of liquidity in the financial sector. A credit crunch is believed to be the main cause of the US recession in 1990/1991. The credit crunch was raised again and again when financial crises like the financial crisis from 2007 arose, where borrower-related problems initially existed.

Against this background, there is a particular risk that banks will reduce the number and amount of corporate loans overall.

causes

If the demand for credit falls during a recession, especially because of the rising interest rate, there is no credit crunch. Then the banks increase their credit margins and / or their creditworthiness requirements, for example by means of loan collateral, in order to compensate for risk , which dampens credit demand. Rather, there must be credit supply restrictions by credit institutions that have neither interest-related nor credit-related causes. Causes in the banking sector can be:

The latter two causes are the main drivers of the credit crunch.
  • Liquidity risk :
As a result of the deterioration in maturity transformation , the banks are exposed to an increasing liquidity risk , which is further increased by the late or non- payment of debt by the borrower.
  • Banking supervisory legislation :
Statutory credit restrictions (such as the minimum equity requirements for credit risks in the Capital Adequacy Ordinance ) restrict the granting of credit in general ( large loans , million loans ) and borrower- specifically (deterioration in ratings ) and / or require higher risk exposure values . Since the autumn of 2008, the Deutsche Bundesbank has noticed “deleveraging” in the German banking industry, ie a reduction in the credit volume in the bank's balance sheet . Deleveraging (for example through loan trading , sale of transferable loan facilities ) is the result of legal credit restrictions. At the same time, the restrictive legislation leads to undercapitalization of the credit institutions, because the capital adequacy requirements at times of unexpected depreciation of assets (such as write-downs on securities , typically also - as in 1931 - defaults on credit claims ), which the credit institutions are fundamentally more cautious, i.e. less, even with sufficient refinancing options Loans granted.

Legal credit restrictions

Otto Christian Fischer first suggested in the banking inquiry of November 1934 that the reasonable amount of individual loans should be made dependent on the equity of a bank. This is what § 12 KWG a. F. dated December 5, 1934 for the first time within the framework of a large credit regulation that the registration center of the Reichsbank had to record large loans from 1 million Reichsmarks. This was the first time that there was an obligation to report loans. The explanatory memorandum complained that “large exposures are being excessively cultivated in all branches of the banking industry” and therefore represent a source of capital misdirection and capital losses. For the Deutsche Bundesbank it was finally “proven that the vast majority of bank insolvencies since 1962 were related to large loans that had become uncollectible”. This means that the large loan is considered to be the first credit contingent that restricts the credit range offered by credit institutions.

Statutory or other quantitative or qualitative limits on lending by banks under banking supervisory law must be accepted and implemented. If this leads to a restriction in lending, it is not the responsibility of the credit institutions.

Since January 2007, all EU member states have been subject to stricter banking supervision law. The original Solvency Regulation intervened massively in the lending business by introducing classifications of risk positions based on both the type of loan and the type of borrower and also taking into account rating migrations . These provisions were adopted in January 2014 by the Capital Adequacy Ordinance (CRR). The leverage ratio provided here in Art. 429 (2) CRR compares the entire lending business with core capital , so that when core capital is scarce, only selective loans can be granted. If the unweighted equity ratio falls below the threshold of 3%, credit institutions must either reduce their lending business (e.g. through credit trading) or increase their equity. This regulatory lower limit for the unweighted equity ratio limits the maximum possible business volume to around 33.3 times the existing core capital. Hence, the leverage ratio can contribute to credit shortages.

The Liquidity Ordinance, which has been in force since January 2007, requires banks to have sufficient liquidity at all times, which they can achieve - with given refinancing - by taking into account highly liquid assets (which do not include the lending business). This 1st degree liquidity can also be achieved by restricting the loan offer and exchanging assets.

Risk-Weighted Assets and Rating Problem

The core capital ratio is of particular importance from a regulatory point of view , the amount of which depends not only on the absolute amount of eligible equity, but above all on the risk-weighted assets, i.e. in particular the credit portfolios of credit institutions. If the rating within the risk-weighted assets deteriorates, the core capital ratio is also reduced, assuming the conditions remain unchanged, and the possibility of further lending is reduced. In order to increase the core capital ratio again, the credit institutions must either reduce their risk-weighted assets or increase their core capital.

In the event of economic downturns, the requirements for capital backing are increased, although an increase in the supply of credit would be necessary to revive the economy. In economically good times, the backing obligations are reduced as a result of debtors being upgraded. The capital requirements therefore have a procyclical effect, because they reinforce both good and bad phases. This pro-cyclical effect is associated with the risk that the banks tend not to lend enough during recession or even pronounced economic crises and possibly grant loans too recklessly in boom years (see also Bubble Economy ).

System relevance

A credit crunch reduces income in the economy, (future) earnings prospects decline, investments are postponed and, insofar, less credit is in demand. If the usual income of bank borrowers falls so far that they can only insufficiently service their bank debts, this further devalues ​​the credit claims in the bank balance sheets and the therefore falling equity ratio exacerbates the credit crunch. An increase in the conditions (equity ratios) for European credit institutions ( Basel III ) is therefore not only rated positively.

If there is a credit crunch or if it is feared by the banking system, lending is more rationed and the creditworthiness of potential borrowers is checked more closely. If bank customers do not pass the credit check, the banking sector likes to point out that there is no credit crunch if customers have poor creditworthiness and credit is to be refused or if credit standards are (must) generally be tightened in times of economic downturn. The macroeconomic interdependence remains hidden.

Countermeasures

A credit crunch has macroeconomic consequences - often despite the low interest rate policy . The establishment of bad banks also aims to relieve the banks' equity and, in this respect, to facilitate lending. In October 2008, as part of the German Financial Market Stabilization Act, the insolvency law applicable to German banks was loosened (until December 31, 2013) and a decision was made to extend it in November 2012.

Full allotment policy

The Deutsche Bundesbank stated in 2010: “Many companies postponed investments or were unable to finance planned investments due to a lack of bank loans. This triggered an unusually sharp slump in economic activity in many countries around the world. For example, the German gross domestic product (GDP) fell by 5.2 percent in 2009. ”“ In order to prevent liquidity bottlenecks in international payment transactions, the Eurosystem switched to a full allotment policy in the course of the crisis - that banks grant loans to businesses do not restrict, so to avoid a credit crunch. "

Effects

A credit crunch leads to insufficient credit supply for the economy. It hinders planned investments or weakens the liquidity of non-banks. If the supply of bank credit grows weaker than the demand for credit, there is a market risk that the lagging credit supply will dampen macroeconomic activity, which could delay or, in extreme cases, prevent an upswing . A credit crunch can therefore contribute to a recession or exacerbate it, which in the worst case can lead to the bankruptcy of economic entities ( companies , private households ). This exacerbates the recession and with it the credit risks of the banks, which further intensify their attentiveness in lending. During a credit crunch, the core capital ratio of banks falls , while the equity ratio of non-banks rises because they increasingly have to resort to self-financing and the credit crunch prevents them from accessing external financing .

Small and medium-sized enterprises (SMEs) in particular are affected by a credit crunch because large companies have a larger range of financing instruments ( capital market , international credit transactions) at their disposal and their equity ratio tends to be higher. The lower equity ratio of SMEs requires higher external financing and thus a higher credit risk for banks.

See also

Web links

Individual evidence

  1. ↑ Sigrid Bekmeier-Feuerhahn, The dynamics of profound change in society, economy and companies , 2011, p. 93
  2. ^ Allen N. Berger / Gregory F. Udell, Did risk-based Capital allocate Bank Credit and cause a Credit Crunch in the US? , in: Journal of Money, Credit and Banking 26, 1994, p. 588
  3. ^ Ben Bernanke / Care S. Lown, The Credit Crunch , in: Brookings Papers on Economic Activity, 1991, p. 209
  4. ^ Council of Economic Advisers, Economic Report on the President , 1992, p. 46
  5. ↑ Deutsche Bundesbank, The development of loans to the private sector in Germany , Monthly Report 2009, p. 22
  6. ^ John Maynard Keynes, Essays in Persuasion , 1931, p. 172 f.
  7. ↑ Klaus Heldt, Conditional Capital and Incentive Effects at Banks , 2013, p. 85
  8. ↑ Thomas E. Hall / J. David Ferguson, The Great Depression. An International Disaster of Perverse Economic Policies , Michigan 1998. ( online ) P. 171.
  9. ^ Aylmer Vallance, Very private enterprise. An anatomy of fraud and high finance , London 1955. ( online ) P. 85.
  10. ↑ Hans Gestrich, Neue Kreditpolitik , Stuttgart and Berlin 1936. ( PDF ; 647.7 KB) p. 78 f:
    “Even if this is not guaranteed by law or in another form, the latent guarantee of the state towards the owners would remain the bank balances, the nature of which makes it impossible to indifferently watch their demise. Because this would by no means only be a loss of wealth for a number of private individuals, but a sudden deflationary shock for the entire economy. The connection between the state and credit banks is therefore indissoluble. "
  11. ^ Ernst Baltensperger , Credit Rationing: Issues and Questions , in: Money, Credit and Banking 10 (2), 1978, p. 173
  12. ↑ Otto Eckstein / Allen Sinai, The Mechanisms of the Business Cycle in the Postwar Era , in: RJ Gordon (Ed.), The American Business Cycle Continuity and Change, 1986, p. 61 f.
  13. ↑ Advisory Council on the Assessment of Overall Economic Development: Annual Report 2013/14: Against a backward-looking economic policy. (PDF; 6.0 MB) p. 58, item 99:
    “And company surveys provide indications that, especially in Greece , Portugal and Spain, a significantly higher proportion of companies compared, for example, in Germany and France, the lending behavior of their banks than assess restrictively. "
  14. ↑ Advisory Council on the Assessment of Overall Economic Development: Annual Report 2013/14: Against a backward-looking economic policy. (PDF; 6.0 MB) p. 76:
    "The significantly lower demand for corporate loans - especially from large companies - is, according to the survey, mainly due to the use of internal financing by companies."
  15. ^ Deutsche Bundesbank: The development of loans to the private sector in Germany , Monthly Report 2009, p. 23
  16. ^ Deutsche Bundesbank: The development of loans to the private sector in Germany , Monthly Report 2009, p. 24
  17. ↑ Klaus Peter Berger , Financial Crisis and Credit Crunch , in: Journal of Banking and Capital Market Law No. 2, 2009, p. 45
  18. ↑ Deutsche Bundesbank: The Eurosystem's Monetary Policy Under: Special measures of the Eurosystem, full allotment policy:
    "In the course of the crisis, the Eurosystem switched to a full allotment policy, under which it made any amount of central bank money available to commercial banks for refinancing operations - provided they were sufficient Provide collateral. One purpose of this measure is to prevent crisis liquidity bottlenecks in payment transactions. In addition, the aim is to prevent a "credit crunch" - namely that banks restrict the granting of loans to the economy because they fear that they will not be able to obtain the central bank money they need via the money market due to the general crisis of confidence. "
  19. ^ Deutsche Bundesbank, The development of loans to the private sector in Germany , Monthly Report 2009, p. 33
  20. ↑ Olivier Blanchard / Gerhard Illing, Makroökonomie , (5th edition) Munich 2009. ( online ) p. 706.
  21. ↑ Ludwig Sperk / Manfred Wilsdorf, Die Liquiditatsverhalt relation der deutschen Sparkassen , Berlin 1956. ( online ) p. 161.
  22. ↑ Gabler Wirtschaftslexikon: Definition of the credit crunch :
    "Even if the banking system is supplied with sufficient liquidity by the central bank, the banks do not pass on the liquidity in the event of a credit crunch, because they need this themselves to maintain their solvency."
  23. ^ Paul JJ Welfens: Financial Innovations, Growth and the Transatlantic Banking Crisis. In: Innovation and Internationalization: Festschrift Für Norbert Koubek. Heidelberg 2010. ( online ) p. 311:
    “Since the Basel I / II regulations stipulated an equity ratio of 8% as a minimum for banks, losses at banks mean a decrease in equity in the banking sector and consequently worsened prospects for lending to companies and private households. "
  24. ↑ Joachim von Köppen, The Equity of Credit Institutes , 1966, p. 203
  25. ↑ Christoph Müller, The emergence of the Reich law on credit from December 5, 1934 , 2003, p. 221
  26. ↑ German Bundesbank, the immediate amendment to the Banking Act , in: Monthly Report July 1976, p 19
  27. ↑ Council of Experts for the Assessment of Macroeconomic Development, Annual Report 2013/14 , Against a Backward-Looking Economic Policy. (PDF; 6.0 MB) p. 216, item 368:
    "The fact that banks tightened their standards for lending during the crisis speaks in favor of a decline in the supply of loans in Europe."
  28. ↑ Hannes Enthofer / Patrick Haas, Asset Liability Management , 2016, p. 189 ff.
  29. ↑ Financial Times Deutschland of April 22, 2009: Paradigm Shift: Hand in Hand into Ververben. ( Memento from April 24, 2009 in the Internet Archive )
  30. ↑ Christian Rugen: The Equity of Banks in the Context of the Financial Market Crisis ( Memento of the original from April 18, 2010 in the Internet Archive ) Info: The archive link was inserted automatically and not yet checked. Please check the original and archive link according to the instructions and then remove this notice. @1@ 2Template: Webachiv / IABot / www.jura.uni-hamburg.de
  31. ↑ OECD, Economic Outlook, Edition 2003/1. No. 73, June 2003. ( online ) p. 54.
  32. ↑ Sebastian Mayer: Effects of the financial market crisis 2008 on the middle class. Hamburg 2011. ( online ) p. 61.
  33. ↑ Daniel Gaschler: Basel III - The effects of the new capital definition for banks. Hamburg 2013. ( online ) p. 49:
    “The strengthening of the equity ratio is good, the tightening of the liquidity regulations is good, the disadvantage of loans to companies is bad. We didn't have a credit crunch during the crisis, but the current form of the rules will lead to it. "
  34. ↑ Deutsche Bundesbank, Monthly Report January 2009 , Annexes, p. 30
  35. ↑ Advisory Council on the Assessment of Overall Economic Development: Annual Report 2013/14: Against a backward-looking economic policy. (PDF) p. 58, item 99:
    “In addition to the consolidation efforts and the improvement of competitiveness, the European banking crisis is of economic relevance, since the structural problems in the banking sector are linked to effects on real economic development. The fundamental question in this context is to what extent investment activity is curbed by supply-side restrictions on lending. "
  36. ^ Hans Gestrich: Credit and saving. Jena 1944. p. 66:
    "And as far as bankers as a whole are concerned, experience as well as theoretical considerations teach us that the more cautious the banks are in granting loans, the more loans freeze."
  37. ^ Daniel Krause: Financial market stabilization and insolvency. In: The financial crisis, white collar crime and morality. Berlin and New York 2010. ( online ) p. 338.
  38. ^ Hermann Kulzer: Insolvency Law AZ: Overindebtedness
  39. ↑ Advisory Council on the Assessment of Overall Economic Development: Annual Report 2013/14: Against a backward-looking economic policy. (PDF) p. 222, item 381:
    “A delay in bank restructuring is often justified by the fact that the need for restructuring would be lower in the course of an economic recovery. However, there is a risk that the recovery will be a long time coming if the banks do not have enough new capital and the problems for the real economy persist. "
  40. ↑ Advisory Council on the Assessment of Overall Economic Development: Annual Report 2013/14: Against a backward-looking economic policy. (PDF; 6.0 MB) p. 218, item 373:
    "Only a strong, well-capitalized banking sector can guarantee that the real economy is supplied with loans and that resources are efficiently allocated."
  41. ↑ Deutsche Bundesbank: Geld und Geldpolitik ( Memento of the original from July 29, 2013 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. (PDF) p. 101. @1@ 2Template: Webachiv / IABot / www.bundesbank.de
  42. ^ Deutsche Bundesbank: Money and Monetary Policy. ( Memento of the original from July 29, 2013 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. (PDF) pp. 188-189. @1@ 2Template: Webachiv / IABot / www.bundesbank.de
  43. ↑ Deutsche Bundesbank, The Development of Lending to the Private Sector in Germany , Monthly Report 2009, p. 30
  44. ↑ Paul Krugman, Forget the Crisis !: Why We Have to Spend Money Now , 2012, p. 54
  45. ↑ Michael Holz, Opportunities for Cooperation between Macropolitics in the EMU , 2004, p. 113
  46. ↑ Deutsche Bundesbank, The development of loans to the private sector in Germany , Monthly Report 2009, p. 34