A financial crisis is a severe disruption of the economic and financial system that leads to a sharp decline in asset prices and an inability for businesses and consumers to pay their debts. It can also lead to liquidity shortages that cause companies to close or run out of funding. A financial crisis may also be exacerbated by the growing risks associated with shadow banking (unregulated financial entities) and overvalued asset markets, which are disconnected from economic fundamentals.

The global financial crisis began in 2007 and peaked in September 2008. Several major investment banks collapsed including Lehman Brothers and Bear Stearns, as well as many commercial banks. Throughout the crisis, many other financial institutions faced liquidity problems due to their exposure to subprime mortgages. The crisis was fueled by the bountiful issuance of mortgages, which were then sliced and diced and packaged into securities such as collateralised debt obligations (CDOs) and mortgage-backed securities (MBS). Eventually, investors in these securities became wary that many of these mortgages were made to people with subprime credit ratings who would be unable to repay their loans, thus leading to a rapid depreciation in the value of these assets.

In response to the crisis, governments lowered interest rates to near zero; bought mortgage and government debt; and bailed out many struggling banks. These actions helped stabilize the economy and prevent a severe economic depression, but millions of people lost their jobs, homes and substantial amounts of wealth.