Credit Crunch Hits the Real Economy

Bernanke today:

"Our banking system is well capitalized."

"Our concern has turned...less on the solvency of these institutions and more on their ability to extend the credit our economy needs to keep growing."

"...with the shutters now coming down on new lending both to corporations and, of course households, commercial bank loans and leases have begun to contract when measured on a 3-month annualised basis. This is extremely rare having only occurred six times in the last thirty years and only in the mid 1970s and the early 1990s did genuine credit crunches take hold with bank lending dropping on a sustained basis.

With the banking system facing a looming funding crisis and the credit crunch for the real economy only just getting under way, the Bear Stearns affair increasingly looks as marking the end of the beginning of the credit crunch rather than the beginning of the end that it was initially taken for."