Financial Crisis In Banking Industry Essay

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Financial crisis is a state in which the value of assets or financial institution drops rapidly and usually comes as a result of assets or institution being over valued and this is shown by the investor’s behavior. This is associated with a run on banks or panic in which the banks shareholders sell off their shares or withdraw their savings with expectation that the value of their shares will fall if they remain in the financial institution.
The main types of financial crisis are; banking crisis where a bank suffers a sudden rush of withdrawals by depositors rendering the bank insolvent, secondly there is speculative bubbles which exist in the event of large sustained over pricing of some class of assets and buyers purchases the assets based solely on the expectations that they can later resell it at a higher price, lastly there is currency crisis that emerge when the country that maintain a fixed exchange rate is suddenly forced to devalue its existing currency due to unsustainable deficit in current account.
The main causes of financial crisis in relation to banking industry in the economy are as follows;
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Regulations are usually made to eliminate or to mitigate financial crisis. Insufficient regulation occurs where the government has enacted less regulations to control financial crisis thus resulting into the effect that the banking industry would enact their own regulations that would result in overvaluing the asset value of the banking sector resulting in a financial crisis, while excessive regulations happens when the government has enacted more stringent rules and regulations on banking sector to control financial crisis, this has an effect of placing more regulations o banking sector hence reducing the chances of the sector adjusting to the prevailing market

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