A financial crisis can have wide-ranging effects. It begins when the value of assets like stocks, housing, or currencies suddenly decreases. This can lead to a recession if economic activity declines. Financial crises occur for reasons like risky lending, herd behavior, and regulatory failures. They can cause unemployment to rise as demand falls, leading to less production and spending in a recessionary spiral.

1. ●
A tradegy from 2008.

2. Financial crisis.
● Something lose a large part of
their value.
● It has effect on the real economy
if a recession or depressión
follows it.

3. Types of financial crisis.
● Banking run:
- A bank suffers a sudden rush of withdrawals by
depositors.
✔ It hasn´t enough funds available for everyone.
✔ The fear of losing their savings is the reason.
✔ Usually occur after periods of risky lending and
heightened loan defaults.
✔

4. Stock market crash and buble.
-It happens when the present value of something
exceeds the future income.

5. Causes:
● Participants buy the asset primarily in hopes
of selling it later at a higher price.
● They will go on buying only as they expect
others to buy.
● Examples. Crash of 1929.
Dot-com of 2000/1.
Housing Bubble in USA. (2007).

6. Consequences:
1. When many participants decide to sell the
price will fall.
2.Everyone do the same in order not to reduce
his profit.
3.The price of the asset goes down one and
another.

7. Currency crisis and Sovereign
default.
● It happens when a ● European Exchange
country devalue its Rate mechanism
currency, because were forced to
or a speculative devalue in 1992/3.
attack. ●
● It happens when a
country fails to
payback its
sovereign debt

8. Recession and Economic
stagnation.
Recession. Economic
It happens when a stagnation.
negative growth It happens when a
have placed in two long period of slow
or more quarters. growth hace
(GDP). placed.

9. Depresion.
It happens alfer a long period of recession.
Usually a recession became as a depression due to
wrong decitions, which are taken by the
Goverments, many of them can´t avoid it.

10. Example of how the crises
s
works.
Demand goes down
12
10 Negative growth unemployment
8
Columna 1
6 Less money to spend
Columna 2
Columna 3
4
2
0
Fila 1 Fila 2 Fila 3 Fila 4
Sales go down
Fewer items to produce

11. Causes and consequences of
financial crises.
● Strategic ● Herd behaviour.
complementary. ● Regulatory failures.
● Self-fulling markets. ● Fraud.
● Leverage. ● Contagion.
● Aset-Liability ● Recessionary
mismatch. effects.

12. Strategic complementarity.
● Some investors have incentives to coordinate their choices.
● Others do the same thing that the others are expected to to, then
the self-fulfillling prophecies occur.
● A vicious circle is made, they is no economical asset to follow.
● Investors mimic the strategie of others in order to reduce their
wrong decitions.
●

13. Leverage.
● It happens when a ● Leverage can
financial institution increase the profit
borrows in order to but the loss too.
invest more.
● Leverage magnifies
the potential
returns from
investment.

14. Example of leverage.
Bank A Invert in
Ask for 100 to Bank B Factory B
Profit 4%
Bank A pay a rate of 5% to B
Factory B pay a rate of 9% to bank A

15. Asset-liability mismatch
● It happens when a degree of mismatch
between the banks short-term
liabilities(deposits) and its long-term assets
(loans) take place.
● The problem burst when depositors decide to
withdraw their funds suddenly and quickly.

16. Herd behaviour.
● 1-First ● 2-Many ● 3-Others go
investors overestim on buying
in a new ate asset driving up
assets. values. the price.
● 4-Soething ● 5-All the ● 6-The sales
could investors decreases
happen sell, then the price
and the the spiral one and
price goes go into another.
down. reverse.

17. Financial regulation .
● Goverments try to
regulate the
markets:
-Transparency.
-Publicity.
-Capital
requirements.

18. Wrong regulations.
● If the capital requirement is too much, the
banks won´t be able to borrow loans to the
people.
● When the capital is scarce, the crisis go on
for ages.

19. Recessionary effects.
● Fraud. ● Contagion
● Take place when a ● Take place when a
company attracted financial crises
depositors with spread from one
misleading claims institution to
about their another.
strategies.
● Subprime mortage.