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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 “Systemic Risk” in the Context of DeFi Contagion?
What Is the Potential Systemic Risk Associated with a Failure in a Net Settlement System?
How Do Collateral Requirements Mitigate Systemic Risk in Derivatives?
How Does a Clearing House’s Risk Model Manage Systemic Risk?