systemic risk
Domino effect danger
Systemic risk is the danger that failure in one part of a financial system will cascade through interconnected institutions, potentially collapsing the entire system.
A single bank's collapse might trigger runs on other banks, freezing credit markets and spreading panic.
The 2008 financial crisis demonstrated how mortgage defaults could threaten the global economy.
Regulators monitor systemic risk to prevent such chain reactions: The bank was deemed too big to fail because of the systemic risk its collapse would pose.
Catastrophic loss of control
- collapseSudden structural failure
- financial crisisSevere economic system breakdown
- market crashSudden market decline
- bank failureFinancial institution collapse
credit crunch · liquidity crisis · currency crisis · recession · depression · black swan · Lehman Brothers · too big to fail
Sequential causation phenomenon
- chain reactionSelf-sustaining causal sequence
- spilloverExcess that escapes
- cascadingFalling in stages
- ripple effectCascading secondary results
amplification · feedback loop · propagation · transmission · interconnectedness · network effects · correlation · fire sales
Ease of breaking
- exposureState of being unprotected
- susceptibilityLiability to influence
- interconnectednessState of mutual linkage
- complexityState of being complicated
opacity · single points of failure · moral hazard · complacency · structural weakness
Systems for trading securities
- leverageBorrowed capital for amplified returns
- liquidityConvertibility to cash
- monetary policyCentral bank economic controls
- fiscal policyState spending and taxation
central bank · interest rates · asset bubbles · shadow banking · derivatives · securitization · debt levels · money markets
Supervision or inadvertent omission
- supervisionOverseeing people or processes
- stress testingEvaluating capacity under extreme conditions
- capital requirementsMinimum funds banks must hold
- Dodd-FrankFinancial regulation legislation
meltdown
Catastrophic loss of control
- collapseSudden structural failure
- financial crisisSevere economic system breakdown
- market crashSudden market decline
bank failure · credit crunch · liquidity crisis · currency crisis · recession · depression · black swan · Lehman Brothers · too big to fail · bailout
domino effect
Sequential causation phenomenon
- chain reactionSelf-sustaining causal sequence
- spilloverExcess that escapes
- cascadingFalling in stages
ripple effect · amplification · feedback loop · propagation · transmission · interconnectedness · network effects · correlation · fire sales · panic selling
fragility
Ease of breaking
- exposureState of being unprotected
- susceptibilityLiability to influence
- interconnectednessState of mutual linkage
complexity · opacity · single points of failure · moral hazard · complacency · structural weakness
financial markets
Systems for trading securities
- leverageBorrowed capital for amplified returns
- liquidityConvertibility to cash
- monetary policyCentral bank economic controls
fiscal policy · central bank · interest rates · asset bubbles · shadow banking · derivatives · securitization · debt levels · money markets · capital flows
oversight
Supervision or inadvertent omission
- supervisionOverseeing people or processes
- stress testingEvaluating capacity under extreme conditions
- capital requirementsMinimum funds banks must hold
- riskdownside, product liability, threat assessment, peril, hazard
- economic problemsmarket failure, recession, inflation, deflation, stagflation
- Financial Crisisfinancial crisis, Great Recession, recession, credit crisis, bank failures
- Bank Failuresbank failure, bank closure, bank run, insolvency, receivership
- systemic risks
- bankingbank, banks, ATM, ATMs, account
risk, system, risky, risked, systems, systematic, risking, systemic, ecosystem