Crises rarely start big. They spread when a loss or a sudden need for cash meets short-term funding, collateral calls and forced selling. Here are the channels, six episodes with dated numbers, and how liquidity stress turns into insolvency.
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They spread when many firms fund long-lived or hard-to-sell assets with money that can leave overnight. A loss, or simply a rush for cash, makes lenders pull back; borrowers then sell what they can, prices fall, and every other holder of the same assets faces bigger margin calls and lower collateral values. The original loss is often small compared with the selling it triggers. Central banks and governments stop the spiral by lending against assets, buying them or guaranteeing the funding that is running.
Scope. This page explains the mechanics with six episodes from 2008 to October 2026 and dated numbers from regulators and central banks. It does not predict the next crisis, rank banks or say what to buy or sell. Stock-market losses in each episode are covered in the crash history. Education, not advice.
| Episode | Trigger | Main channel | Where it showed (primary data) | Backstop |
|---|---|---|---|---|
| 2008 | Mortgage losses; Lehman files Sept 15 | Runs on repo, commercial paper, money funds | Fed assets $0.91T → $2.24T (Sep 3 → Dec 31); fed funds 1.94% → 0.14% | Fed lending, money-fund guarantee (Sept 19), asset purchases |
| Sept 2019 | Tax date + $54B Treasury settlement | Cash shortage in repo | Benchmark repo 2.43% → 5.25% in one day | Fed repo operations, bill purchases |
| March 2020 | Pandemic; dash for cash | Fire sales of Treasuries, margin calls | 10-year yield 0.54% → 1.18% (Mar 9 → 18) while stocks fell | Rate cut to 0–0.25% (Mar 15); Fed assets $4.16T → $7.17T |
| Sept–Oct 2022 (UK) | Sharp rise in long gilt yields | Collateral calls on leveraged pension (LDI) funds | Forced gilt sales into a falling market | Bank of England bought £19.3bn of gilts, Sept 28 – Oct 14 |
| March 2023 | SVB: losses on long bonds | Uninsured deposit run | $42B out in a day; all-bank deposits −$420B in March | Fed bank lending at par value; full deposit cover at failed banks |
| 2026 (ongoing) | Energy supply shock | Inflation and rates, no funding run so far | Brent $61.98 → $138.21 (Jan 2 → Apr 7); CPI +3.7% y/y (Sep) | None needed so far; Fed raised rates Sept 16 |
2008. After Lehman Brothers filed for bankruptcy on September 15, 2008, the Reserve Primary Fund, a $65 billion money fund holding $785 million of Lehman paper, “broke the buck” on September 16 when its share value fell to $0.97 (SEC). Investors pulled about $200 billion, 10% of assets, from prime money funds in two days, which froze the short-term lending companies and banks relied on, until the Treasury guaranteed money-fund shares and the Fed opened a facility on September 19 (New York Fed).
September 2019. No firm failed; reserves were simply too low. A tax date and Treasury settlements drained about $120 billion, reserves fell to about $1.34 trillion, and overnight repo jumped above 5% until the New York Fed lent cash (FEDS Notes). The details are in what is the repo market.
March 2020. Investors sold even government bonds to meet redemptions and margin calls and to hold cash, and the disruption was worst in the US Treasury market (New York Fed, 2023). Hedge funds’ gross Treasury exposure had doubled to $2.4 trillion by February 2020, largely financed in repo (Federal Reserve working paper). The Fed cut its range to 0–0.25% on March 15 (statement) and its balance sheet grew by $3 trillion in 15 weeks.
UK, 2022. A rapid rise in long gilt yields hit pension funds that used leveraged liability-driven investment strategies; the Bank of England described a vicious spiral of collateral calls and forced gilt sales (FPC, October 2022). It offered to buy up to £5bn per auction, bought £19.3bn in total, and had sold all of it by January 12, 2023 (Bank of England).
2026, as of October 28. The energy supply shock has shown up in prices and yields: consumer prices rose 3.7% in the year to September, the Fed raised its range to 3.75%–4.00% on September 16, 2026 and held it there on October 28, and the 10-year Treasury yield went from 4.19% on January 2 to 5.31% on October 5 before easing to 4.96% on October 22 (FRED). Brent was still $115.22 on October 20. This page does not forecast whether it turns into a funding crisis; it lists the channels to watch.
A firm is illiquid when it cannot pay what is due today; it is insolvent when its assets are worth less than its debts. The two feed each other: a firm short of cash sells assets at whatever price it can get, and if that price is below the value on its books the loss eats its capital. Four things decide whether stress stays a cash problem or becomes a capital problem.
| Factor | The question to ask | Example |
|---|---|---|
| Collateral value | What are the assets worth if sold today, and what haircut will lenders apply? | SVB’s long bonds were worth far less than their cost once yields rose |
| Funding withdrawal | How much funding can leave in a day, and is it insured? | Mostly uninsured deposits at SVB; overnight repo for LDI funds and hedge funds |
| Capital losses | Do realized and unrealized losses exceed equity? | Selling bonds turns paper losses into booked losses |
| Backstops | Who lends, against what, at which valuation? | In March 2023 the Fed valued pledged bonds at par, not market value |
Worked example (illustrative bank). A bank has $100 billion of assets: $55 billion of loans, $5 billion of cash and $40 billion of Treasuries with a 1.5% coupon and 8 years left, bought at par. It funds them with $92 billion of deposits and $8 billion of equity. Yields on similar bonds rise to 4.5%. The bonds are now worth 80.03 per 100 (the present value of 16 coupons of 0.75 and 100 at the end, discounted at 2.25% per half-year), a paper loss of $40B × (1 − 0.8003) = $7.99 billion. Marked to market, the bank’s $8 billion of equity is almost gone, and it still has $5 billion of immediately available cash.
Now $25 billion of deposits leave in a day. Cash covers $5 billion. To raise the other $20 billion by selling, the bank must sell $25 billion of face value at 80.03, booking a $5.0 billion loss: book equity falls to about $3 billion and the remaining bonds still carry a $3 billion paper loss. The sale realizes part of an existing economic loss; it does not by itself make assets worth less than liabilities. Further losses or a forced-sale discount could make the bank insolvent. If instead a central bank lends $20 billion against the bonds at par, as the Fed’s March 12, 2023 facility did (Federal Reserve), nothing is sold and no loss is booked. The economic loss is still there; the backstop buys time for the bonds to mature or for capital to be rebuilt.
The real SVB numbers were larger and faster: depositors withdrew $42 billion on March 9, 2023 and about $100 billion more was expected on March 10, when the bank was closed (Federal Reserve working paper). Fed Governor Bowman later put the uninsured share of its large tech and health-care deposits at more than 95% (speech). Fed assets rose from $8.34 trillion to $8.64 trillion in the week to March 15 as banks borrowed.
The same four factors apply to your own accounts. None of this tells you when a crisis will come; it tells you what would happen to your money if one did.
Where to hold large cash balances is compared in where to park large cash, and brokerage protection in SIPC coverage for large accounts.
No. A crash is a fall in prices; a financial crisis is a breakdown in funding and payments. The 2022 US bear market saw stocks and bonds fall together, the S&P 500 down 18% for the year, without a US funding run until March 2023 (see the 2022 bear market). And September 2019 was a funding scare with no losses at all. Reading every repo spike or bank-stock drop as “the next 2008” overstates the risk; ignoring how much short-term funding sits behind long-lived assets understates it. How diversification behaves when correlations jump is covered in correlations in crashes.
Limitations. Six episodes are not a statistical sample, and each had causes this page simplifies. Numbers are from central banks, regulators and their staff research, each with its own date; some figures, such as deposit flows, are weekly and seasonally adjusted. Backstops change after each crisis, so the next one will not look like the last. The map of the whole system, and where these channels sit in it, is in how the financial system works.
Its paid research membership provides market context, cross-asset analysis, an events calendar and regular written notes. These can inform your review of an existing plan; they do not reliably predict crashes or guarantee better outcomes.
Contagion is when trouble at one firm or market spreads to others that were not directly hit, usually through funding runs, collateral and margin calls, or fire sales of the same assets. In 2008 losses at one money fund led to about $200 billion leaving prime money funds in two days.
Mortgage-related losses made lenders doubt banks and dealers that funded themselves short term. After Lehman filed on September 15, 2008, runs hit repo, commercial paper and money funds, and the Fed’s balance sheet grew from $0.91 trillion to $2.24 trillion by December 31.
Investors rushed for cash and sold even Treasuries to meet redemptions and margin calls. The 10-year yield rose from 0.54% on March 9 to 1.18% on March 18, 2020, and the Fed cut rates to 0–0.25% and bought securities on a large scale.
A rapid rise in long gilt yields forced leveraged liability-driven investment funds used by pension schemes to post collateral, so they sold gilts, which pushed yields higher. The Bank of England bought £19.3bn of gilts between September 28 and October 14, 2022 and later sold them all.
It held long-term bonds that had lost value as rates rose and relied on large, mostly uninsured deposits. When it moved on March 8 to sell securities and raise capital, depositors withdrew $42 billion on March 9, 2023 and about $100 billion more was expected the next day.
Illiquid means a firm cannot pay what is due today; insolvent means its assets are worth less than its debts. Forced selling at fire-sale discounts can add losses that turn the first into the second, which is why central banks lend against assets in a panic.
As of October 26, 2026 it has worked through prices and rates rather than funding runs: Brent peaked at $138.21 on April 7, consumer prices rose 3.7% in the year to September, and the Fed raised rates on September 16. That can change, and this page does not forecast it.
FDIC insurance covers at least $250,000 per depositor, per ownership category, at each insured bank. Amounts above that depend on the bank or on emergency decisions, such as the systemic risk exception that fully protected all depositors of SVB and Signature Bank on March 12, 2023.
Market intel provides a Risk ON / Neutral / Risk OFF reading from four pillars, cross-asset analysis, an events calendar and regular written notes. Context for reviewing a plan, not a crash forecast.
Educational content, not investment advice. Examples are illustrative; past performance does not guarantee future results.