Systemic Risk

Causes

Interlinkages within the financial system; loss of trust among providers and users of capital.

Definition

The risk of a breakdown or collapse of an entire financial system or market, rather than just the failure of individual parts.

Consequence

Results in a severe economic downturn and may require unusual and extreme federal intervention.

Distinction

Differs from idiosyncratic risk, which affects only a single institution or asset and does not ripple out.

Policy Focus

Limiting the build-up of systemic risk and containing economic crises events.

Characteristic

Captures the risk of a cascading failure in the financial sector caused by interlinkages within the system.

Key Event Influence

Lessons from the Great Financial Crisis continue to shape how regulators view systemic risk.

1866-XX-XX

2008-XX-XX

Header Quick Links Main navigation Header Quick Links Systemic Risk Systemic risk refers to the risk of a breakdown of an entire system rather than simply the failure of individual parts. In a financial context, it captures the risk of a cascading failure in the financial sector, caused by interlinkages within the financial system, resulting in a severe economic downturn. [...] It is important to distinguish between systemic and one-off, or idiosyncratic, risks. An idiosyncratic shock will affect only a single institution or asset and will not ripple out into the rest of the system. Systemic risk focuses on the danger of the entire financial system collapsing, causing a major downturn in the real economy. The consequences of a systemic financial crisis are more devastating than those of crises in other economic sectors because of the role that finance plays in the [...] In contrast, systemic risk was a major factor in the economic impact of the collapse of the world's largest bank, Overend and Gurney (O&G), in 1866 after a failed venture in high-risk lending, particularly shipping technology. O&G requested a bailout from the Bank of England, which was refused. A crisis ensued, panic spread through the banking system, and liquidity vanished so that even the market for otherwise safe assets, such as gilts, dried up. The British economy went into a severe

Systemic risk can be defined as the risk associated with the collapse or failure of a company, industry, financial institution, or an entire economy. It is the risk of a major failure of a financial system, whereby a crisis occurs when providers of capital, i.e., depositors, investors, and capital markets, lose trust in the users of capital, i.e., banks, borrowers, leveraged investors, etc. or in a given medium of exchange (US dollar, Japanese yen, gold, etc.). It is inherent in a market

Systemic risk refers to the risk of a breakdown of an entire system rather than simply the failure of individual parts. In a financial context, it denotes the risk of a cascading failure in the financial sector, caused by linkages within the financial system, resulting in a severe economic downturn. A key question for policymakers is how to limit the build-up of systemic risk and contain economic crises events when they do happen.

In the fields of project management and cost engineering, systemic risks include those risks that are not unique to a particular project and are not readily manageable by a project team at a given point in time. They are caused by micro or internal factors i.e. uncertainty resulting from attributes of the project system/culture. Some use the term inherent risk. These systemic risks are called individual project risks e.g. in PMI PMBOK(R) Guide. These risks may be driven by the nature of a [...] Systemic risk can also be defined as the likelihood and degree of negative consequences to the larger body. With respect to federal financial regulation, the systemic risk of a financial institution is the likelihood and the degree that the institution's activities will negatively affect the larger economy such that unusual and extreme federal intervention would be required to ameliorate the effects. [...] Systemic risk evaluates the likelihood and degree of negative consequences to the larger body. The term "systemic risk" is frequently used in recent discussions related to the economic crisis, such as the subprime mortgage crisis. The systemic risk of a financial institution is the likelihood and the degree that the institution's activities will negatively affect the larger economy such that unusual and extreme federal intervention would be required to ameliorate the effects. The 2008 financial