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 FINANCIAL CRISIS INQUIRY COMMISSION REPORT

, they have tightened lending standards, reduced lines of credit on credit cards,
and increased fees and interest rates. In the third quarter of ,  of banks im-
posed standards on credit cards that were tighter than those in place in the previous
quarter. In the fourth quarter,  did so, meaning that many banks tightened again.
In fact, a significant number of banks tightened credit card standards quarter after
quarter until the summer of . Only in the latest surveys have even a small num-

bers of banks begun to loosen them. Faced with financial difficulties, over . mil-
lion households declared bankruptcy in , up from approximately . million
in . 
Together, the decline in households’ financial resources, banks’ tightening of lend-
ing standards, and consumers’ lack of confidence have led to large cuts in spending.
Consumer spending, which in the United States makes up more than two-thirds of
GDP, fell at an annual rate of roughly . in the second half of  and then fell
again in the first half of . Gains since then have been modest. Spending on cars
and trucks fell by an extraordinary  between the end of  and the spring of
, in part because consumer financing was less available as well as because of job
and wage losses.

BUSINESSES: “SQUIRRELS STORING NUTS”
When the financial panic hit in September , business financing dried up. Firms
that could roll over their commercial paper faced higher interest rates and shorter
terms. Those that could not roll over their paper relied on old-fashioned financing—
bank loans—or used their own cash reserves. Large firms, one analyst said at the
time, turned to their cash balances like “squirrels storing nuts.” Jeff Agosta, an execu-
tive at Devon Energy Corporation, told the FCIC that had the government not sup-
ported the commercial paper market, “We would have been eating grasshoppers and
living in tents. Things could have been that bad.” While his expression was hyper-

bolic, the fear was very real. The lack of credit and the sharp drop in demand took its
toll on businesses. In , just under , U.S. companies filed for bankruptcy

protection. That figure more than tripled to nearly , in . Firms’ long-term
plans suddenly had to be reevaluated—the effects of those decisions persist, even
though credit markets have recovered somewhat.
As for the banks, by mid- they had begun to restrict access to credit even for
large and medium-size businesses. The Federal Open Market Committee noted this

tightening when it announced on September , , that it was cutting the federal
funds rate. After the Lehman bankruptcy, companies such as Gannett Corporation,
FairPoint Communications, and Duke Energy drew down their existing lines of
credit because they were worried about getting shut out of credit markets. 
Without access to credit, with cash reserves dwindling, and with uncertainty
about the economy high, corporations laid off workers or cut their investments, in-
hibiting growth and reducing their potential for improving productivity. A survey of
chief financial officers found that  of U.S. companies were somewhat or very af-
fected by credit constraints, leading to decisions to make cuts in capital investment,