Systemic Risk


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Systemic Risk

Risk common to a particular sector or country. Often refers to a risk resulting from a particular "system" that is in place, such as the regulator framework for monitoring of financial_institutions.

Systemic Risk

A risk that is carried by an entire class of assets and/or liabilities. Systemic risk may apply to a certain country or industry, or to the entire global economy. It is impossible to reduce systemic risk for the global economy (complete global shutdown is always theoretically possible), but one may mitigate other forms of systemic risk by buying different kinds of securities and/or by buying in different industries. For example, oil companies have the systemic risk that they will drill up all the oil in the world; an investor may mitigate this risk by investing in both oil companies and companies having nothing to do with oil. Systemic risk is also called systematic risk or undiversifiable risk.
References in periodicals archive ?
The results in Table 1 through 3 demonstrate that when [DELTA]CoVaR and MES statistics are calculated for all traded stocks in the years immediately preceding the crisis (2006-2007), the largest financial institutions that are alleged to be the primary sources of systemic risk for the economy do not even appear among the list of firms with the fifty most negative [DELTA]CoVaR or MES estimates.
Traditionally, bank-based systemic risk grew from the threat that a spike in depositor withdrawal demands would deplete available deposit reserves, seen most notably during the Great Depression.
Fitzpatrick: "The Association's research suggests that strong lead supervision of an insurance group can be more effective than higher loss absorbency (HLA) in addressing systemic risk.
This utilitarian philosophy, coupled with theorems of non- cooperative game theory, poses the challenge that individual institutions, excluding regulators/supervisors, would have little-to-nil motivation (and resources) to contain systemic risk.
Implementation of these measures would bolster Canada's ability to monitor and deal with systemic risk in the financial system, with the proposed cooperative securities regulator playing a key role.
Similarly, management of systemic risk has been set as a regulatory responsibility of the SECP under the SECP Act, 1997.
Parallel efforts to increase transparency in a market widely regarded as opaque were centered on swap data reporting, a means of arming regulators with better information to probe for systemic risk.
The research on systemic risk of banks has been extended from the in-depth study on the liquidity risk of banks.
The researchers used three independent channels of systemic risk - the interbank loan market, the sovereign credit risk market and the asset-backed loan market - to test which banks were resilient and to track how shocks spread between domestic and international banks.
A second suggestion is that the treatment of systemic risk must include an analysis of political risk.
Foreign currency loans thus pose a systemic risk from a "common market shock" perspective.
economy, anticipation that the Fed will wind down its bond purchasing program, plus fewer systemic risks in the euro zone.

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