Financial crisis

A financial crisis occurs when banks experiencea sudden and unexpected drop in liquidity. This situation may occur when depositors suddenly withdraw more funds from their bank accounts than expected, likely due to a belief that the money will soon run out or that inflationary pressure is reducing the value of their holdings. When this happens, banks do not have sufficient short-term liquidity to meet withdrawal demands, forcing them to scramble for funds. If they are unable to meet the demands of depositors, banks may have to close their doors, causing a massive decline in confidence in the banking system. Financial crises frequently require bailout funding from the government in order to restore confidence in the banking system.