Financial Crisis

AAA

DEFINITION of 'Financial Crisis'

A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated with a panic or a run on the banks, in which investors sell off assets or withdraw money from savings accounts with the expectation that the value of those assets will drop if they remain at a financial institution.

INVESTOPEDIA EXPLAINS 'Financial Crisis'

A financial crisis can come as a result of institutions or assets being overvalued, and can be exacerbated by investor behavior. A rapid string of sell offs can further result in lower asset prices or more savings withdrawals. If left unchecked, the crisis can cause the economy to go into a recession or depression.

RELATED TERMS
  1. Bubble Theory

    A school of thought that believes that the prices of assets can ...
  2. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock ...
  3. Circuit Breaker

    Refers to any of the measures used by stock exchanges during ...
  4. Economic Collapse

    A complete breakdown of a national, regional or territorial economy. ...
  5. Great Depression

    An economic recession that began on October 29, 1929, following ...
  6. Panic Selling

    Wide-scale selling of an investment, causing a sharp decline ...
RELATED FAQS
  1. How did the financial crisis affect the oil and gas sector?

    The financial crisis had a negative impact on the oil and gas sector as it led to a steep decline in oil and gas prices and ... Read Full Answer >>
  2. Why should investors care about risk weighted assets of a bank?

    Investors should care about risk-weighted assets because they show how much of a bank's assets are susceptible to market ... Read Full Answer >>
  3. How is market to market accounting different than historical cost accounting?

    Historical cost accounting and mark-to-market, or fair value, accounting are two methods used to record the price or value ... Read Full Answer >>
  4. What are the Basel III rules, and how does it impact my bank investments?

    The Basel III rules are a regulatory framework designed to strengthen financial institutions by placing guidelines pertaining ... Read Full Answer >>
  5. What is the long-term outlook of the banking sector?

    The long-term outlook of the banking sector remains cyclical, but with less volatility than in the past. Given structural ... Read Full Answer >>
  6. What is the average annual dividend yield of companies in the banking sector?

    The average annual dividend yield of companies in the banking sector is 2.4%. This dividend yield is higher than the risk-free ... Read Full Answer >>
  7. What's the difference between cyclical unemployment and seasonal unemployment?

    Cyclical unemployment arises due to changes in the business cycle; it occurs when the gross domestic product (GDP) falls ... Read Full Answer >>
  8. How can LIBOR be used as an economic indicator?

    LIBOR, or ICE LIBOR, is a benchmark rate calculated by the Intercontinental Exchange. Contributor banks may borrow unsecured ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    How Influential Economists Changed Our History

    Find out how these five groundbreaking thinkers laid our financial foundations.
  2. Insurance

    A Review Of Past Recessions

    Here we look at the biggest economic declines in the U.S. since the Great Depression.
  3. Bonds & Fixed Income

    5 Signs Of A Credit Crisis

    These indicators can illuminate the depth and severity of problems in the credit markets.
  4. Active Trading Fundamentals

    Recession: What Does It Mean To Investors?

    Understanding the business cycle and your own investment style can help you cope with an economic decline.
  5. Bonds & Fixed Income

    Can Keynesian Economics Reduce Boom-Bust Cycles?

    Learn about a British economist's proposed solution to a common economic problem.
  6. Personal Finance

    The Crash Of 1929 - Could It Happen Again?

    Learn about the series of events that triggered the Great Depression.
  7. Mutual Funds & ETFs

    The 2007-08 Financial Crisis In Review

    If you don't know how the recession began, read on to learn more.
  8. Economics

    What Caused The Great Depression?

    Learn how government actions may have contributed to this major economic downturn.
  9. Trading Strategies

    When To Follow The Crowd And When To Lose It

    Our profits ultimately depend on the misfortune of other market players.
  10. Active Trading Fundamentals

    The Shiny Object Syndrome that Kills Trader Productivity

    People get distracted and, in their excitement, they end up trying to learn everything rather than focusing on the subject they had originally set out to learn.

You May Also Like

Hot Definitions
  1. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  5. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center