Concepts of Microeconomics in a UK-Based Organization: Barclays Case Analysis

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Impact of Credit Crunch on UK Northern Rock: The credit crunch can be basically described as the increasing costs of borrowing money due to prevailing situations and rising interest rates. The increase in the interest rates resulted in the inability of many people to afford the repayments on mortgages that led them to default. The rising interest rates had huge effects on the subprime market in the United States in which money was lent to probable risky debtors. Credit crunch was not only exacerbated by the increase in interest rates but it was also fueled by over lending by banks that could offer around 125 percent mortgages. In such instances, these banks were left with 25 percent out of pocket because they could only recover 100 percent in cases of defaults and repossessions. Therefore, the main cause of the credit crunch in 2007-2009 was over-optimistic lending by banks without the considerations of recoverability and risks. Understanding the Credit Crunch: The credit crunch is described as a situation where there is a sudden shortage of funds for lending that contribute to a decrease in available loans. In most cases, credit crunch takes place because of several reasons including the drying up of funds in the capital markets. The other reasons for the occurrence of credit crunch are the abrupt increase in interest rates and direct money governmental money controls (Pettinger, 2011). Origin of the 2007-09 Credit Crunch: The origin of the credit crunch that

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