Question

Briefly but completely explain how the potential for systemic risk underlies many of the aspects of bank regulation. Your answer should include examples of how safety and soundness regulation is implemented that seek to limit the scope of systemic risk.

Answer 1

With respect to federal financial regulation the systematic risk of a banks of financial institution is the likelihood and the degree that the institution activities will negatively affect the larger economy such that unusal and extreme federal intervention would be required to ameliorate the effects.factors of systematic risk. 1)Diversifation 2)regulation 3) project risks 4) systematic risk and insurance. Categories: credit risk ,marketrisk , operating risk . examples of risk sources of systematic risk could be macroeconomics factors such as inflation changes in interest rates fluctuation in currencies recission ,wars etc.macro factors which infulecnce the direction and volatility of the entire market would be systematic risk.limit the scope of risk : but all measures should be consistent with internationally agreed standards to ensure that the playing field is level and that systematic risk is reduced.more robust market infrastructure: a key way to lesson the systematic risks created by large interconnected firms is to put in place more resilient structures