What Is A Financial Crisis

Date: May 17, 2023, 11:50

In the financial crisis, asset prices sharply decrease financial value, merchants and consumers cannot pay their debts, and financial institutions face a cash shortage in the market. The financial crisis is often accompanied by panic and bank executions when investors sell the price of their assets or withdraw the same amount of money they have in their bank accounts from the bank because they fear that if the price remains constant, their assets in financial institutions will cause Their costs will be reduced.

The financial crisis may occur in other situations, which include the collapse of the economic bubble, the destruction of the stock market, and the currency crisis. A financial crisis is sometimes limited to banks, which means that sometimes a financial crisis occurs only in banks or spreads to a single economy, a country's economy, or the entire world economy.

The reasons for the financial crisis

Many factors cause the financial crisis. In general, if institutions or assets are overpriced, a financial crisis may occur, and the financial crisis will be exacerbated by irrational investor behavior. For example, the sale of some assets causes the price of the assets to fall and forces people to withdraw their support from the bank or withdraw the money they have in the bank if there is a rumor of the bank's bankruptcy.

The main reasons that cause the financial crisis are systemic failures, unpredictable or uncontrollable human behavior, excessive risk-taking, and contagion that causes problems like a virus from one institution or country to another. A region's economy will be pushed toward failure and stagnation if the financial crisis is not controlled. A financial crisis may occur even when measures are taken for a financial crisis.