Explain the Term “Systemic Risk” in the Financial System.

Systemic risk is the risk of collapse of an entire financial system or market, as opposed to the collapse of a single entity, which can be caused by a chain reaction of defaults. In derivatives, it is the risk that the failure of one major counterparty could cascade through the system.

Regulation aims to reduce this risk through clearing houses and capital requirements.

What Is the Role of a Central Counterparty Clearing House (CCP) in Mitigating Counterparty Risk?
How Could the Failure of a Major Stablecoin Impact the Broader Financial System?
What Are the Contagion Risks If a Major Stablecoin Breaks the Buck?
What Is ‘Systemic Risk’ in the Context of Derivatives Markets?
What Is the Potential Systemic Risk Associated with a Failure in a Net Settlement System?
How Does a Clearing House Manage Systemic Risk?
Define ‘Systemic Risk’ in the Context of the Crypto Financial System
How Does the Speed of Settlement Impact Systemic Risk in the Crypto Derivatives Market?

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