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Financial Crisis
A financial crisis is a period of severe disruption in financial markets characterized by asset price collapses and institutional instability.
Meaning in Practice
Crises often involve banking failures, credit contractions, and sharp declines in asset prices. They can be triggered by excessive leverage, asset bubbles, or systemic shocks.
Why It Matters
Financial crises can lead to deep recessions, unemployment, and long-term economic damage. Regulatory reforms often follow major crises.
Market Impact
Markets experience extreme volatility, liquidity shortages, and risk repricing. Credit spreads widen and equity markets decline sharply.
Example
The global financial crisis of 2008 resulted in widespread bank failures and a severe global recession.
Related Terms
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