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What Is a Liquidity Crisis ?

Thursday, February 10, 2022

/ by Admin

 Liquidity Crisis 

A liquidity crisis is a financial situation characterized by a lack of cash or easily-convertible-to-cash assets on hand across many businesses or financial institutions simultaneously. In a liquidity crisis, liquidity problems at individual institutions lead to an acute increase in demand and decrease in supply of liquidity, and the resulting lack of available liquidity can lead to widespread defaults and even bankruptcies. Key Takeaways  A liquidity crisis is a simultaneous increase in demand and decrease in supply of liquidity across many financial institutions or other businesses.  At the root of a liquidity crisis are widespread maturity mismatching among banks and other businesses and a resulting lack of cash and other liquid assets when they are needed.  Liquidity crises can be triggered by large, negative economic shocks or by normal cyclical changes in the economy.

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