BANKING CRISES AND THEIR IMPLICATIONS ON THE FINANCIAL SYSTEM

Banking crisis are harm as they generate a interruption in the economic activity. The collapse of the payment systems causes the interruption of the large scale transactions and may lead to the collapse of out-put. The episodes of crises are typically associated with a deterioration of the banks balance sheets and the debtors status. Due to the fact that banks are important source of finance, the reduction of credit may lead to a reduction of investments and consume. Another characteristic of banking crisis is that they lead to the insolvency of a great part of the banking system. However, the banking crisis do not affect only the banking system but they also have deep implications on the whole economic activity.