Financial crises have many common features. Preceding any crisis, there is almost invariably some sort of asset price bubble, a corresponding credit boom, and large capital inflows into the economy (see, for example, Reinhart and Rogoff (2008)). This is not too surprising. A financial crisis by definition involves a precipitous drop in nominal wealth and an increase in volatility, which widen credit spreads. That said, it remains likely that, while these characteristics are necessary, they are not sufficient to define a true financial crisis. Its severity fundamentally depends on the underlying financial sector's exposure to such conditions together with the overall market's uncertainty about the financial sector's exposure to the developments at hand.
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