In a free market system, loans and repayment of those loans have much to do with the generation of profit in the long-term. But when these loans become extremely scarce, the lending institution has no way of generating income. It is required to make loans in order to make any money at all. Without the ability to make loans amid the current market situation, it becomes clear that there can be no money earned by the banking institutions and all manner of difficulties arise from these conditions. Without the ability to make loans, lending institutions and banks would very quickly have some extreme difficulties on their hands, difficulties that they could not overcome without assistance from the other banks around them or the government.
With this scarcity of loans, consumers also feel the pinch, as they are unable to get the loans that they need to build businesses, homes or catch up with their bills. This 1-2 combination has said the economy reeling, unable to catch its feet and unable to come back from the edge. Without the ability to make loans, banks and financial institutions will very quickly fold up and never be seen again.
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