Financial Crisis
Significant disruption in the flow of funds from lenders to borrowers
Insolvent
Situation for a bank or other firm whose assets have less value than its liabilities, so its net worth is negative
Bank Run
Process by which depositors who have lost confidence in a bank simultaneously withdraw enough funds to force the bank to close
Contagion
Process by which a run on one bank spreads to other banks resulting in a bank panic
Bank Panic
Situation in which many banks simultaneously experience runs
Lender of Last Resort
Central bank that acts as the ultimate source of credit to the banking system, making loans to solvent banks against their good, but illiquid, loans
Federal Deposit Insurance Corporation
Federal government agency established by Congress in 1934 to insure deposits in commercial banks
Debt-Deflation Process
Process first identified by Irving Fisher in which a cycle of falling asset prices and falling prices of goods and services can increase the severity of an economic downturn
Too-Big-To-Fail Policy
Policy under which the federal government does not allow large financial firms to fail for fear of damaging the financial system
Disintermediation
Exit of savers and borrowers from banks to financial markets
Basel Accord
International agreement about bank capital requirements