In: Economics
Systemic Risk, which is refers to the risk of brrekdown of th whole financial system of acountry and its spread to one sector to another and this leads to a glbal financial crisis. Systemic risk was a major contributor to the financial crisis of 2008.This is because of companies considered to be a systemic risk are called "too big to fail." Lehman Brothers’ size and integration into the U.S. economy created which is a source of systemic risk. which is one of the strongest example of systemic risk. When the firm collapsed that created problems in the whole financial system and the economy of the nation,only the most credit worthy people get loans others get no financial support, capital market become froze up. Thus systemic risk leads to total economic disaster. Normally this will occure during the time of natural calamities or a man madedisasters like hurrycanes,war etc.
Systemic risk primarily arises from endogenous risk, which is made by and within the financial system and is then amplified by the system Amplified means systemic risk first triggered by a small issue but later it willmagnified by financial linkagee wih in the system.After that with the help of systemic risk centre identify the risk through the capital market oprations then make policies to reduce or avoid the risk. Even though if the implimentation of polcy are not workin efficiently that will make big disaster. The main risk reduction step of US is implimented through the Property Casualty Insurers Association of America,using there are two key assessments for measuring systemic risk, the "too big to fail" (TBTF) and the "too interconnected to fail"or "too connected to fail" (TCTF or TICTF) tests. TBTF is a traditional way of measurement like think about the how was the government intervention and which can be measured in terms of an organizations size compared to the national and international marketplace, market share concentration, and competitive barriers to entry or how easily a product can be substituted.TCTF test is a measure of the likelihood and amount of medium-term net negative impact to the whole economy of an institution's failure to be able to organize its continuing business.Through these method US can be control the voliume of systemic risk for a larger extent.