Banking Sector Breakdowns: Scenarios In Which Markets Fail

When certain events in the banking sector occur, it becomes clear that the industry is facing a crisis. The IMF, International Money Fund, has identified a few specific scenarios that illustrate a financial market's impending failure as detailed below.

Policy intervention

When the government has had to impose policies upon banking sector and make changes that override the power of individual banks, it is possible that the market is at risk for failure.

Forcing a Merger

This can be indicator of a possible breakdown in the industry. This may occur in the event that two banks are struggling, or if one bank is struggling and another is doing exceptionally well. Rather than allow the banks to collapse, the government will insist upon a merger that will improve the overall market.

Bank Closure

Banks with weak management structure, poor decisions concerning risks, and a poor balance of assets may be forced to close to prevent extensive impact on the market as a whole.

Financial Assistance

The final scenario is the one in which the government provides financial assistance to individual banks. This emergency support from the government, commonly known as a "bailout", is a clear sign that the industry is struggling and is in danger of failing.

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Banking Sector Breakdowns: Scenarios In Which Markets Fail

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