How Does "Counterparty Risk" Contribute to Systemic Risk? ⎊ Path

How Does “Counterparty Risk” Contribute to Systemic Risk?

Counterparty Risk is the risk that the other party to a financial contract will default on their obligation. In interconnected financial systems, the default of one major counterparty can trigger a chain reaction of defaults across multiple institutions that are owed money, leading to a loss of confidence and liquidity, thus escalating into systemic risk.

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