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Systemic financial risk

Systemic financial risk is the accumulated probability of disruption in the spatial network relationships of financial system entities, unmanageable in the realization phase with the negative effect of global infestations of financial networks and the real economy. Systemic risk is the likelihood of implementing accumulated irregularities in the country 's financial system that undermine the financial stability of the global market.

The object of risk is the global financial system, and the risk subjects are the "nodes" of network finance, where global financial capital is concentrated. The global financial system is subject to systemic financial risk not only as an environment of professional activity, but also as a space of life for society as a whole.

You can highlight the following system financial risk features:

  • they result in irreparable or hard-to-compensate damages;
  • complexity of predicted consequences and development of proactive precautions;
  • no hazard calculation and threat assessment methods;
  • difficulties in identifying the measure and the actors responsible for the consequences of global risks.

Systemic financial risks are difficult to measure and assess, anticipate, warn, calculate the amount of potential damage.

The nature of systemic financial risk is characterized by the following postulates:

  • systemic financial risk is a financial risk that has a devastating effect on the real economy.
  • systemic financial risk is the accumulated risk that is generated over time by adding new shortcomings to the resulting weak link, and at a particular time "overflow of the bowl" there is an explosion with the spread of infection through the network of relationships of counterparties.
  • systemic financial risk is a spatial risk that has two propagation vectors, vertical and horizontal. The first involves penetrating infestation from the bottom up and from the top down through the levels of the global financial system, such as the hierarchy of the largest holdings and financial conglomerate. The second vector provides horizontal contamination through mutual relations, in particular, correspondent banks, depositors, account holders, borrowers and creditors.
  • systemic financial risk - the risk of collective behavior is implemented by the subjects of the system as a reaction to information about an explosion or collapse in one of the links. This is not the sum of many individual risks of the subjects, but an independent risk. If systemic risk were the sum of aggregated risks of entities, such as banks or investment funds, it would be easier to assess (such as through traditional risk management methods) and monitor.
  • systemic financial risk - the risk of failures in financial system object relationships. In this sense, it is legitimate to define systemic risk as the network risk that "infects" networks.
  • systemic financial risk is an unmanaged risk in the implementation phase. It can be warned, predicted, modeled, evaluated, observed, identified before the "trigger is down," and after fighting its consequences and developing new anti-risk programs for the future. However, between "before" and "after" there is a phase of realization of systemic risk, during which there are: a) the "explosion" itself and b) the spread of infection, i.e. infection of participants through networks (relationships). In this phase, systemic risk is unaffected, managed, and similar to disaster risk. The power of systemic contamination cannot be controlled, nor can the power of natural disasters.
  • systemic financial risk is the risk of a negative effect. Unlike the theory of risk, which provides for three possible results - negative, positive, zero, systemic financial risks are realized only with negative effect in the form of destruction of the financial system, mass bankruptcy of financial institutions, disintegration of relationships in financial networks.