Banking crises can lead to systemic risks from "summary" of Economics of Money, Banking and Financial Markets, Business School by Frederic S. Mishkin
Banking crises have the potential to trigger systemic risks within the financial system. When a banking crisis occurs, it can have far-reaching effects beyond just the individual bank experiencing difficulties. The interconnected nature of the financial system means that problems in one institution can quickly spread to others, leading to a domino effect of failures.
One of the key reasons why banking crises can lead to systemic risks is the concept of contagion. Contagion occurs when problems in one bank or sector of the financial system spread to other banks or sectors. This can happen through various channels, such as interbank lending, asset fire sales, or a loss of confidence in the financial system as a who...
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