Financial crises can begin with a narrow problem but spread through interconnected balance sheets. Banks lend to businesses, investors hold securities, households depend on credit and governments rely on functioning payment systems.
When confidence falls, institutions may sell assets quickly or restrict lending. Falling prices can then weaken other balance sheets, creating a feedback loop. This is why liquidity support and financial safeguards matter during severe stress.
The lesson is that financial stability is partly a network problem. A system can become fragile not because every institution is weak, but because many institutions are exposed to the same shock.