liquidity crisis

A liquidity crisis occurs when individuals, businesses, or banks cannot access enough cash or liquid assets to meet their short-term obligations. This can happen due to a sudden loss of confidence in financial markets, leading to rapid withdrawals of funds or reduced lending. Without sufficient cash flow, entities struggle to pay bills, repay loans, or continue operations, which can escalate into a broader economic downturn. Essentially, it’s a situation where the availability of money to cover immediate needs becomes critically low, impacting stability and trust in the financial system.