Systemic RiskKnowledge Center |
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Here we exchange knowledge and experiences in the field of Systemic Risk.
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Definition Systemic Risk?Systemic Risk is the risk inherent to the entire market or an entire financial system. In other words it is the risk of collapse of an entire financial system or of the entire market, as opposed to risk associated with any one individual entity, group or component of a system. It involves all forms of widespread risk that are not particular to a company and which affect all companies or the entire financial system as a whole. Examples include a stock market crash, the breakdown of the entire banking system or the event of a nuclear war. It refers to the risks imposed by interlinkages and interdependencies in a system or market, where the failure of a single entity or cluster of entities can cause a Cascading Failure, which could potentially bankrupt or bring down the entire system or market. There are two key assessments for measuring systemic risk, the "too big to fail" (TBTF) and the "too interconnected to fail" (TICTF) tests:
Investors can not protect their investments from this type of risk by diversifying their portfolio. Sometimes also called: Market Risk.
Compare with: Non-Systemic Risk | Efficient Market Hypothesis | Behavioral Finance | Capital Asset Pricing Model | Plausibility Theory | Hedging | Organizational Resilience |
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