What Is Systemic Risk?

The traditional view of risk in a financial system is that it is the summation of individual risks within the system. However, the financial crisis that started in 2007 has driven home that this view of risk is inadequate. It is the interactions of financial institutions and markets that determine the systemic risks that drive financial crises. We identify four types of systemic risk. These are (i) panicsbanking crises due to multiple equilibria; (ii) banking crises due to asset price falls; (iii) contagion; and (iv) foreign exchange mismatches in the banking system.

Subjects

• Financial crises.
• Risk
• Currency crises.
• Financial institutions
• Risk management.
• Asset price bubbles
• Contagion
• Sovereign default
• Systemic risk

Details

• From
  Journal of Money, Credit and Banking, 45, 1 Supplement (Aug. 2013) 121-127
• Language
  English
• ISSN
  0022-2879