Question

What is a banking crisis, and how is it related to recession/depression?

Answer 1

• Banking crisis is a financial crisis.
• Associated with panic on the banks..
• Where investors withdraw money from their savings expecting the value of Assets will fall..
• Banking crisis cause great depression.
• Banking crisis affect single banks.
• Bank panics affect many banks.
• Banking crisis is marked by bank runs that lead to the demise of financial institutions.
• Bank run occurs when a large number of bank customers withdraw their deposits.

Banking crisis caused Recession.

• Banks created too much money due to the financial crisis.
• This money was used to increase the house prices faster than wages.
• This also Increased the level of personal debts which eventually becomes unfavourable.
• People were unable to keep up with repayments and stop paying loans.
• Banks were in danger of going Bankrupt.
• Lending to households and businesses were limited.
• This slows down in lending cost price drops and
• Borrows increases.
• Economy shrinks when the banks refused to lend further.
• This is how Recession is related to banking crisis.