The Financial Crisis And The Early Warning System Models

The term financial crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value.In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults. Financial crises directly result in a loss of paper wealth; they do not directly result in changes in the real economy unless a recession or depression follows. Each crisis causes enormous costs in the countries concerned. Thus, international financial institutions invest in researching early warning systems (EWS). The Early Warning System models can be made most useful to help sustain global growth and maintain financial stability, especially in light of the lessons learned from the current and past crises. This paper presents a short analysys of the causes of the financial crises from the period 1929-2012, the impact of the crises and the response from international policy makers (early warning systems).