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financial instability, Investor sentiment - Coggle Diagram
financial instability
Liquidity
Reduced trading activity, cash hoarding :arrow_right: Price swings from small trades
Banking and Credit Channel
Instability often causes credit markets to freeze:arrow_right:Banks become risk-averse, reducing loans and pulling back funding
:arrow_right:Corporate defaults rise, and fear spreads leading to sharp declines in asset prices and high volatility
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causes
Macroeconomic Imbalances (high inflation, interest rate hikes, trade deficits)
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Technological or Cyber Risks Increasingly, cyberattacks or tech failures can destabilize markets or financial institutions
Poor Regulation or Supervision Weak financial rules or oversight can allow systemic risks to grow unnoticed
Political or Geopolitical Uncertainty
Wars, sanctions, or unstable governments can trigger capital flight and market panic
High Leverage When companies, households, or governments borrow too much, Small shocks can cause a domino effect of defaults
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