What Is a Bank Crisis?

Banking crisis refers to a crisis in which a bank excessively involves (or lends to a company) engaged in high-risk industries (such as real estate, stocks), resulting in serious imbalances in assets and liabilities, overburdened loan accounts, sluggish capital operations and bankruptcy.

Banking crisis

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Since the 1990s, the world financial industry has shown ups and downs. Bank crises have occurred frequently in the world over the past 15 years. It is often the payment difficulties of commercial banks that trigger bank crises, that is, the lack of liquidity of assets, rather than insolvency. As long as the bank can maintain sufficient liquidity of the assets, it may maintain its existence and operation in a state of insolvency, technical bankruptcy, and virtually no bankruptcy. The banking crisis has a domino effect. Because asset allocation is the main business of financial institutions such as commercial banks, the complex debt-to-debt relationships between financial institutions due to asset allocation make asset allocation risks highly contagious. Once the misallocation of assets of a financial institution cannot guarantee a normal liquidity position, individual or local financial difficulties will evolve into global financial turbulence.

The banking industry is the main body of the financial industry. It has a very important position in the social and economic life of a country and also affects the general public. The impact of the banking crisis is not comparable to that of the general industry crisis. It may affect all aspects of a country's social, economic, and political issues.