Many businesses however, rely on financial markets, not banks to provide their credit needs. In recent period however, the financial markets have been avoiding previously accepted securities. Consequently prices for many considered risky bonds have fallen sharply. It was 588 basis points above the yield on the comparable Treasury bond, double the figure of 273 basis points recorded in June 1997. The shrinking lending by Japanese banks puts a severe squeeze on most Asian economies.
Most economists associate the sources of a credit crunch with a sudden disappearance of liquidity.
In the post World War Two period most credit crunches were regarded as triggered by the central bank. The tighter monetary stance then, would give rise to bad loans and their write-offs. This in turn would trigger a slowdown in lending and in turn would lead to a credit crunch. However, this time around the credit crunch is emerging while the US Federal Reserve has been pursuing a loose monetary policy. In Japan, notwithstanding the fact that interest rates have fallen to almost zero, the credit crunch remains intact.