But I believe the reduction in credit outstanding is also a result of weaker demand for credit. So let’s turn now to the circumstances of potential borrowers. Financial condition of borrowers Sometimes when talking about credit, the lines between supply and demand effects get quite blurry. Banks generally talk about the lack of demand from creditworthy customers.
But when borrowers think about the availability of credit, they don’t divide themselves into creditworthy or not. And borrowers look for the supply of loans on terms that they want. Sticker shock over terms leads them to believe credit is not available. As the financial crisis unfolded and liquidity dried up, consumers and businesses alike found themselves facing two very different problems.