What is Financial Crisis?
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Financial crisis is a situation where financial institutions or assets suddenly lose a major portion of their values. At this moment demand for money quickly rises relative to money supply. The term financial crises often denote banking crisis or debt crisis or foreign exchange market crisis. All crises create the problem of liquidity.
Types of financial crises
• Bank Run: when a huge number of customers rushed to the bank to withdraw cash immediately. If bank suffers to pay the cash on demand due to lack of liquid funds, this situation is called ‘a bank run’. Sometimes a ‘Ban Run’ may push the bank into bankruptcy.
• Systematic banking crisis: a situation in which bank runs are wide spread it called a systematic banking crisis.
• Credit crunch :
It is a position where there are no wide spread bank runs, but banks are reluctant to lend money because they suffer from inadequate funds. It is called ‘credit crunch’.
• Currency crisis or International financial crises:
A country’s fixed exchange is suddenly forced to devalue its currency due to speculative forces, this situation is called currency crisis.
• Wider economic crises
The global financial turmoil of 2008 is a major crisis in the field of finance. Beginning with failures of lager financial institutions in the US, it turned into global financial crisis resulting in a number of European banks were baldly hit and lost their share market holding and a massive digester in the market value of equities and commodities Globally. “The financial crisis created a massive liquidity problem and hence many agencies filed their bankruptcy petition especially in the United States and Europe”.
