Systemic risk can threaten the stability of the entire financial system from "summary" of Financial Markets and Institutions, Global Edition by Frederic S. Mishkin,Stanley G. Eakins
Systemic risk is a critical concept in the world of finance, as it has the potential to disrupt the stability of the entire financial system. This type of risk arises when the failure of a single financial institution or a group of interconnected institutions has the ability to trigger a chain reaction that spreads throughout the financial system. In essence, systemic risk is like a domino effect, where the collapse of one institution can lead to the collapse of others, causing a ripple effect that can have far-reaching consequences. This interconnectedness within the financial system means that problems in one part of the system can quickly spread to other parts, creating a widespread crisis. One of the key reasons why systemic risk is so dangerous is that it can lead to a loss of confidence in the financial system as a whole. Wh...
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