SYSTEMIC RISK

A systemic risk, it’s a risk which can occur in one element of a system and can cause
chain reaction of considerable negative effects on all the other elements of the system as a
result causing a general crisis.
In fact, the systemic risk is focused on the danger of the entire financial and banking system
collapsing, causing a major downtown in the economy. The consequences of the systemic
financial crisis is more devastating than the other crisis in the economic sectors because
finance plays an important role in the economy.
Moreover, the systemic is caused by different factors such as: Banking panics, firstly, which
happens when depositors withdraw more money than they need for consumption because they
see other people taking money out in the bank run. And also, banking crisis due to falling
asset prices who can include the bursting of the real state and other bubbles, a rise of internet
and so one. Secondly, contagion who occurs when the distress of a financial institution infects
others in the system and leads to a systemic crisis, such as what happened in the great
recession of 2007 to 2009.
In addition, we can include financial architecture, foreign exchange mismatches in the
banking system and so one.
To conclude, systemic risk can affect the entire economic system of a country who
occurs in one element of the system. To prevent from it also to bring solutions governments
and actors have to take a lot of decisions such as identifying crisis, policies responses and so
one.