Financial Crisis Definition

A financial crisis is often associated with a panic or a bank run where investors sell off assets or withdraw money from savings accounts.

• Asset prices drop in value.
• Consumers are unable to pay their debts.
• Financial institutions experience liquidity shortages.

Generally, a crisis is caused if institutions or assets are overvalued, and can be worsened by panic and herd-like investor behaviour.

Contributing factors include systemic failures, unexpected or uncontrollable human behaviour, regulatory absence or failures, or contagions that is like a virus that spread from one institution or country to the next. If left unchecked, an economic crisis can cause a recession or depression.