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Understanding Systemic Risk

The Obama Administration is set to release its plan to overhaul the financial regulatory system. As NBR's Darren Gersh reports in tonight's program, the reforms focus on preventing systemic risk. Learn more about systemic risk here.



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Definition of Systemic Risk

The U.S. Commodity Futures Trading Commission (CFTC) glossary offers this general definition of systemic risk:

Systemic Risk - The risk that a default by one market participant will have repercussions on other participants due to the interlocking nature of financial markets. For example, Customer A's default in X market may affect Intermediary B's ability to fulfill its obligations in Markets X, Y, and Z.

Related NBR Stories & Links

• 06-15-09: One on One with Former Fed Governor Alan Blinder
• 06-10-09: "Commentary" - Regulation To Rescue The Economy
• 03-26-09: Treasury Secretary Timothy Geithner's New Rules for the Financial Industry
• 03-03-09: "XChange, The NBR Blog" - How Frightening is Systemic Risk - Really?
• 09-16-08: AIG Struggles To Survive

External Links/Articles*

• American Enterprise Institute (AEI)
  AEI is a private, nonpartisan, not-for-profit public policy research institute. This links to an October 2008 paper published by AEI titled, "Systemic Risk and the Financial Crisis."
• Brookings
  Brookings is a nonprofit public policy research organization. This links to a March 30, 2009 paper published by Brookings titled, "Regulating Systemic Risk."
• Federal Reserve
  The Federal Reserve is the central bank of the U.S. This links to the transcript of an August 22, 2008 speech given by Fed Chairman Ben Bernanke. The speech is titled, "Reducing Systemic Risk."
• Federal Reserve Bank of New York
  This links to a copy of then New York Fed Chief Timothy Geithner's July 24, 2008 testimony before the U.S. House Committee on Financial Services. The title of the testimony is, "Systemic Risk and Financial Markets." Geithner became U.S. Treasury Secretary in January 2009.
• The Heritage Foundation
  The Heritage Foundation is a research institute that promotes "conservative public policies." This links to a June 8, 2009 issue paper published by the foundation titled, "Financial Systemic Risk Regulators: Congress Is Asking the Wrong Questions."
• Stanford University
  This links to a copy of a May 12, 2009 speech given by Stanford Professor Economics John B. Taylor. The title of the speech is "Systemic Risk and the Role of Government."

*Clicking these external links will take you off the NBR web site on PBS.org. NBR has no affiliation with these sites.