Why was this crisis so severe? Because the financial system was at its epicenter, the ramifications of the crisis were quickly transmitted to all sectors and countries. The effects of the crisis were magnified by a collapse in business and consumer confidence.
History shows that financial crises are more likely to be followed by severe economic downturns when they are centered in the banking system and occur in the context of rapid build-ups of credit and fast-rising asset prices. This has also been the case with the present crisis. The policy responses to the crisis have been rapid, bold, and unprecedented.