Date: May 24, 2012
Creator: Murphy, Edward V.
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.
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