Banks are usually severely impacted by a financial crisis shock. In reaction the country’s central bank attempts to stabilize the banking system and the economy by injecting liquidity into the system by maintaining or lowering interest rates. It would be virtually impossible to lower interest rates further in an already low inflation, low interest rate, or deflationary environment. Although rebuilding after a major natural disaster could be difficult it would still be possible given enough resources. A country can prevent or minimize the impact of a contagion spreading to its own country due to a financial shock by having sound fiscal and monetary policies that will prevent the country from defaulting on its debt and prevent or minimize the impact of financial bubbles. |
