Subprime crisis and credit crunch
English

Subprime crisis and credit crunch

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finance
economics

In order to stimulate the economy, the US Federal Reserve lowered interest rates.

Banks started to lend to households with a variable rate. Lots of people who were not creditworthy started to borrow to buy houses. It leads to a real estate bubble. But when the rate started to raise, people were not able to face the terms of their mortgage and they found themselves in a situation of default of payment.

Because of this crisis, rating agencies set new stricter criterias to borrow. Banks chose to grant less money leading to a limiting access of loans, in a period where money was needed. This situation is called “credit crunch”.

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