credit crunch: definition and causes - opposite of credit spree

-credit-worthy borrower cannot obtain credit A credit crunch is generally defined as a decline in the supply of credit because, although banks are less willing to lend, lending rates do not rise. According to Green and Oh (1991), a credit crunch is an inefficient situation in which credit-worthy borrowers cannot obtain credit at all, or cannot get it at reasonable terms, and lenders show excessive caution, which may or may not be traceable to regulatory distortion, leaving would-be borrowers unable to fund their investment projects. -Cause of credit: regulatory pressure and overreaction A credit crunch can have several causes, such as regulatory pressures and over-reaction to deteriorating bank asset values and profitability. If regulatory pressure is the obstacle to credit growth, it should be removed, and credit growth can be restored. But if the crunch is caused by inefficient conservative lending by banks, it is an open question whether easing monetary policy can help. -monetary policy can help relieve credit crunch What can monetary policy do to help during a credit crunch when reduced bank lending leads to a shrinking economy? The question is related to the transmission mechanism of monetary policy. One transmission channel of monetary policy is credit. Expansions and contractions of credit affect both aggregate demand and aggregate supply, thus influencing aggregate activities and prices.