What Is Systemic Risk? Does It Apply to Recent JP Morgan Losses?

Description:

Systemic risk refers to the possibility that the financial system as a whole might become unstable, rather than the health of individual market participants. Stable financial systems do not transmit
or magnify shocks to the broader economy. A firm, person, government, financial utility, or policy might create systemic risk if (1) its failure causes other failures in a domino effect; (2) news about its assets signals that others with similar assets may also be distressed, called contagion; (3) it contributes to fire sales during price declines; or (4) its absence prevents other firms from using an essential service, called critical functions. This report discusses how systemic risk may apply to JP Morgan's recent losses.

Creator(s): Murphy, Edward V.
Location(s): United States
Creation Date: May 24, 2012
Partner(s):
UNT Libraries Government Documents Department
Collection(s):
Congressional Research Service Reports
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Creator (Author):
Murphy, Edward V.

Specialist in Financial Economics

Publisher Info:
Place of Publication: Washington D.C.
Date(s):
  • Creation: May 24, 2012
Coverage:
Place
United States
Description:

Systemic risk refers to the possibility that the financial system as a whole might become unstable, rather than the health of individual market participants. Stable financial systems do not transmit
or magnify shocks to the broader economy. A firm, person, government, financial utility, or policy might create systemic risk if (1) its failure causes other failures in a domino effect; (2) news about its assets signals that others with similar assets may also be distressed, called contagion; (3) it contributes to fire sales during price declines; or (4) its absence prevents other firms from using an essential service, called critical functions. This report discusses how systemic risk may apply to JP Morgan's recent losses.

Physical Description:

14 pages.

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Partner:
UNT Libraries Government Documents Department
Collection:
Congressional Research Service Reports
Identifier:
Resource Type: Report
Format: Text