Credit rationing

• Occurs when the terms a borrowing relationship become more restrictive. For example, higher margin requirements for security transactions indicates tighter credit requirements. Sometimes, credit rationing may occur in some industries and not in others to promote or discourage specific types of activities. Credit rationing can occur when interest rates have been trending either up or down. In the latter, defaults often prompt new and higher margin requirements. Thus, credit availability is more limited and interest rates can move higher in the near term as cash demands increase.


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 Embedded terms in definition
Interest rate
Margin requirement
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