What are the three key stages of an impending financial crisis? Explain.

Money and Banking - economics

 

Stage 1: Imitation of a financial crisis:

This stage is caused by:

Mismanagement of finance.

Unhealthy government interference like creating more restrictive accounting hiring practices.

Limiting the activities between commercial banks and security firms.

Stage 2: Banking Crisis:

This is a situation where the banks are so afraid of giving loan to the people because they fear they wont pay back.

The banks fails to even offer loans to firms/businesses because they are underperforming/poor performance.

At this stage the government can also purchase the assets and equity from the financial institutions to strengthen the economy.

Stage 3: Debt Inflation:

It is as a result of falling prices.

It indicates slow economic growth of a country.

This is a situation where the debt inflation is so high to an extent the banks sells loans at lower prices to increase demands.