Financial Crisis
A severe disruption in financial markets characterized by sharp asset price declines, institutional failures, and credit market freezes.
What is Financial Crisis?
A financial crisis is a period of acute distress in financial markets, typically involving a sharp decline in asset prices, the failure or near-failure of major financial institutions, a freeze in credit availability, and significant economic contraction. Crises often emerge from excessive leverage, asset bubbles, regulatory failures, or external shocks. The 2008 Global Financial Crisis — triggered by the collapse of the U.S. subprime mortgage market — led to the near-failure of the global banking system, required trillions in government bailouts, and caused the deepest recession since the 1930s. Understanding financial crises is essential for risk management and systemic financial regulation.
Example
The 2008 financial crisis began when U.S. subprime mortgage defaults surged, causing the value of mortgage-backed securities (MBS) held by major banks to collapse. Lehman Brothers filed for bankruptcy in September 2008, triggering panic across global markets. The S&P 500 ultimately fell 57% from peak to trough. The U.S. government responded with TARP ($700 billion bank bailout) and the Fed launched unprecedented quantitative easing to stabilize credit markets.