Group 6

Financial Crisis

Why Do Financial Crises Occur and

Why Are They So Damaging to the Economy?
Asymmetric Information and
Financial Crises

 What is Asymmetric Information?

 Agency Theory
 How does it lead to Financial Crisis?
Dynamics of Financial Crises in
Advanced Economies

 Stage One: Initiation of Financial Crisis

1. Mismanagement of Financial Liberalization or Innovation.
2. Asset Price Boom and Bust.
3. Spikes in Interest Rates.
4. Increase in Uncertainty.
 Stage Two: Banking Crisis
 Stage Three: Dept Deflation
The Mother of All Financial Crises:
The Great Depression

The Great Depression was a severe

worldwide economic depression that took
place mostly during the 1930s, beginning in
the United States. The timing of the Great
Depression varied across nations; in most
countries, it started in 1929 and lasted until
the late 1930s.[1] It was the longest, deepest,
and most widespread depression of the 20th
century.
The Great Depression started in the United
States after a major fall in stock prices that
began around September 4, 1929, and
became worldwide news with the stock market
crash of October 29, 1929, (known as Black
Tuesday). Between 1929 and 1932,
worldwide gross domestic product (GDP) fell
by an estimated 15%. 
The Financial Crisis 2007-09
Causes of Financial Crisis 2007-
09:
 Financial Innovation in the Mortgage
 Agency Problems in the Mortgage
Markets
 Asymmetric Information and Credit
Rating Agencies
Effects of Financial Crisis 2007-
09:
 Residential Housing Prices
 Deterioration in Financial Institutions’
Balance Sheets
 Run on the Shadow Banking System
 Failure of High-Profile Firms
Dynamics of Financial Crises in
Emerging Economies

 Stage One: Initiation of Financial Crisis

1. Path A: Mismanagement of Financial Liberalization or Globalization
2. Path B: Severe Fiscal Imbalances
 Stage Two: Currency Crisis
1. Deterioration of Bank Balance Sheets Triggers Currency Crises
2. Severe Fiscal Imbalances Trigger Currency Crises
 Stage Three: Full Fledged Crisis
Financial Crisis in Mexico, East
Asia And Argentina
 Group Members
Gyan Pratik (37)
Jai Yadav (38)
Jay Dixit (39)
Kaustabh Chatterjee (40)
KMV Sushma (41)
MLK Siri (42)
Priyanka Mahadik (43)

Thank You