Systemic Risk
Systemic risk is the risk of an event that could trigger a chain reaction of losses across multiple markets, sectors, or institutions. It is the risk of a major financial crisis that could have a significant impact on the global economy. Systemic risk is also known as “system-wide risk” or “macro-prudential risk” and is a major concern for regulators, investors, and financial institutions.
History of Systemic Risk
The concept of systemic risk has been around for centuries, but it was not until the 2008 financial crisis that it became a major focus of regulators and policymakers. The crisis highlighted the need for better risk management and oversight of the financial system. Since then, regulators have implemented a number of measures to reduce systemic risk, including increased capital requirements, stress tests, and liquidity requirements.
Table of Comparisons
Risk Type | Description |
---|---|
Systemic Risk | Risk of an event that could trigger a chain reaction of losses across multiple markets, sectors, or institutions. |
Market Risk | Risk of losses due to changes in the market value of an asset. |
Credit Risk | Risk of losses due to a borrower’s inability to repay a loan. |
Operational Risk | Risk of losses due to inadequate or failed internal processes, people, and systems. |
Summary
Systemic risk is the risk of an event that could trigger a chain reaction of losses across multiple markets, sectors, or institutions. It is a major concern for regulators, investors, and financial institutions and has been a focus of regulators since the 2008 financial crisis. To reduce systemic risk, regulators have implemented a number of measures, including increased capital requirements, stress tests, and liquidity requirements. For more information on systemic risk, you can visit the websites of the Federal Reserve, the International Monetary Fund, and the Bank for International Settlements.
See Also
- Market Risk
- Credit Risk
- Operational Risk
- Liquidity Risk
- Interest Rate Risk
- Foreign Exchange Risk
- Counterparty Risk
- Volatility Risk
- Reputational Risk
- Legal Risk