A financial crisis is when consumers and businesses cannot settle their debts, the value of assets decline steeply, and financial organizations start experiencing liquidity shortages. It is associated with bank run and panic. Most investors withdraw their savings money and sell their assets off due to fear that the investments might decline in value if they continue staying in those institutions. Some other things that might be associated with financial crisis include sovereign default, currency crisis, or stock market crashes. Financial crisis might affect banks only or spread in a single country, a region or worldwide. During the period between 2007 and 2009 there emerged a financial crisis which affected the entire globe which has been reminding the world about the nature of crisis.
These crisis affect the poor and the rich together with large and small nations. These crisis have different intensity and they can spread throughout the globe easily. They thus require comprehensive and immediate policy responses together with significant changes in fiscal policies and financial sector and can lead to global coordination.
The 2008 financial crisis had a major impact on the globe and this necessitated the urge to understand crisis. As implicated by those crisis, great and significant damages can occur on the financial and economic policies in case they emerge. There has been an increased need to come up with best responses and consequence analysis because the previous crisis are still fresh in terms of how they affected the globe. In this paper we will conduct a literature review on financial review to provide an overview of its effects, and how it can be avoided,