In finance, systemic risk is the risk of collapse of an entire financial system or entire market, as opposed to the risk associated with any one individual entity, group or component of a system, that can be contained therein without harming the entire system.
What is meant by 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, if denotes the risk of a cascading failure in the financial sector, caused by linkages within the financial system, resulting in a severe economic downturn.
What are examples of systemic risk?
Examples of systematic risks include:
- Macroeconomic factors, such as inflation, interest rates, currency fluctuations.
- Environmental factors, such as climate change, natural disasters, resource, and biodiversity loss.
- Social factors, such as wars, changing consumer perspectives, population trends.
