The banking panic of the fall of 2008 causes economies around the world to descend into a severe recession. The spark of the panic can be seen within the credit boom in the mid-2007, then followed by the demise of subprime mortgages and securitized products. This in turn raises worries about the solvency and liquidity of financial institutions, evolving into a full blown banking panic. Resulting in the failure of the Lehman Brothers and Washington Mutual, and multiple government run financial institutions . (Ivashina & Scharfstein , 2009). As a result during 2008 the prices of most asset classes and commodities declined, although the cost of corporate and bank borrowing rose significantly. In both the USA and the UK interest rates peaked at over 5% (See Appendix A) . Consequently Syndicated lending started to fall mid-2007, then accelerated during the banking panic september 2008. The lending in the fourth quarter of 2008 (2008:Q4) was 47% lower than the previous and 79% lower than in (2007:Q2). Across all types of loans: investment and non grade, term loans and credit lines; corporate restructuring and working capital.(Ivashina & Scharfstein , 2009)
A decline in the demand could explain the overall drop in lending during the crisis, it may also explain why more vulnerable banks cut lending more. One explanation is...
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...en proven to lead to corporate failure, sensitivity to the K/L ratio and reduction in both fixed investment and employment. The banking panic and then on the recession 2007 - 09 caused for much higher barriers to access of external finance. This consequently put far more pressure upon financial and nonfinancial firms alike. Pressures which in turn lead to world like corporation failures, reduced investment and employment as a result. We have paid particular attention to small, young and bank dependent firm , as they generally exhibit constraint. However the reason this is of such importance is because small and medium Enterprises contributing around 60% of the value added and 70% of employment (Artola and Genre, 2011). Thus representing a huge area of growth in the economy and as they face the difficulties outlined above we can see how this may be a pressing issue.
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