Question

Why does a financial crisis usually cause even greater damage to an economy than a natural disaster? If the banking sector of an economy suffers a huge loss, why would it be a serious concern to the general public, few of whom are banksíshareholders?

Answer 1

Financial crisis cause greater damage as it stops liquidity and leads to massive widescale repurcurrsions on corporates and businesses which in turn leads to domino effect and thus causes unemployment and crikes and poverty. Natural disaster affects certain set of population while which losses can be met by government discretionary spending and is generally short term.

Banking sector losses can affect general public as the deposits or current and savings accounts take big hit and canbe frozen which may cause liquidity crunch in market and can lead to bankruptcy in long run which thus becomes serious problem if banks have high leverage and poor financial health.