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What is Systemic Risk?
John Spacey, August 23, 2015 updated on March 21, 2021
Systemic risk is the probability of losses due to collapse of a financial system such as the global economy or the economy of a single nation. There are several major types of systemic risk:
1. PoliticalPolitical risks such as conflict or trade wars between nations.
2. SecuritySecurity incidences such as a cyberwarfare attacks that result in the destruction of financial records. Such an event could lead to collapsing confidence in the financial system.
3. AccountingFinancial fraud or accounting errors that lead to the collapse of major financial institutions possibly triggering a cascading failure of banks.
4. Investment RiskExcessive risk taking by major financial institutions resulting in large losses, bankruptcies and widespread market panic.
5. Economic RiskA major economic down cycle such as a prolonged depression can trigger market turmoil that represents a systemic risk.
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