It is extremely difficult to sort out the relative importance on the flow of credit of reduced demand due to weaker economic activity, reduced supply because borrowers appear less creditworthy, or reduced supply because lenders face pressures, such as a shortage of capital, that restrain them from extending credit.
In other words, while demand considerations could certainly result in a decline in credit flows, a reduction in the supply of credit – caused either by bank balance sheet pressures or by banks being reluctant to lend to lesscreditworthy borrowers – could produce the same result.