Systemic risk is a central concept in financial market stability.
It refers to the risk that a default by a market participant, especially a systemically important player, will have a significant negative impact on other market participants and thus threaten the stability of the financial system as a whole. If a market participant can no longer meet its obligations, this can lead to other market participants also getting into difficulties. This can lead to a domino effect that ultimately triggers a chain reaction and destabilises the entire financial system.
The dangers of systemic risk have received increased attention since the global financial crisis. To counteract the risk, various regulatory measures have been introduced, including stricter capital requirements and liquidity regulations. In addition, systemically important players are under special scrutiny and must meet additional requirements to ensure the stability of the financial system.
