Fjármálavanda

Fjármálavanda is the Icelandic term for a financial crisis. It refers to a situation where the financial system of a country or region experiences severe disruption, often characterized by a sharp decline in asset values, widespread bankruptcies, and a contraction of credit. This can manifest in various forms, including banking crises, currency crises, and sovereign debt crises.

A financial crisis can have far-reaching consequences, impacting not only the financial sector but also the real economy. Businesses may struggle to access funding, leading to reduced investment and job losses. Consumers may face reduced purchasing power and difficulty obtaining loans. Government revenues can decline, while demands for social safety nets may increase, potentially leading to increased public debt.

The causes of financial crises are often complex and can include a combination of factors such as excessive leverage, asset bubbles, poor regulation, and macroeconomic imbalances. The Icelandic financial crisis of 2008 is a notable example, where a rapid expansion of the banking sector followed by a collapse of its major banks had a profound impact on the Icelandic economy. Recovery from such crises typically involves significant policy interventions, including fiscal stimulus, monetary easing, and structural reforms.