Mark Twain had it right when he said: A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.

Over the years, the banks have tended to lend reactively to the Business Cycle:

In boom times, banks tend to lend more money, in slumps, less. In boom times, as seen more recently here in Australia, we tend to see an UPWARD credit cycle:

The strong economy led to the banks and other lending institutions aggressively “selling” finance, as a result of strong profits and a low market risk environment. Then as the credit crunch has evolved so we have seen the beginnings of a DOWNWARD credit cycle:

There have been less lenders lending, leading to it becoming harder to raise finance, which leads to a weaker economy as expansion plans are put on hold, which leads to falling profits, rising defaults and increased risks, with the self re-inforcing cycle continuing.