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 ... continued below

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14 pages.

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Murphy, Edward V. May 24, 2012.

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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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14 pages.

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Congressional Research Service Reports

The Congressional Research Service (CRS) is the public policy research arm of Congress. This legislative branch agency works exclusively for Members of Congress, their committees and their staff. This collection includes CRS reports from the mid-1970's through the present--covering a variety of topics from agriculture to foreign policy to welfare.

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  • May 24, 2012

Added to The UNT Digital Library

  • July 3, 2012, 7:51 a.m.

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  • Aug. 13, 2015, 9:33 p.m.

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Murphy, Edward V. What Is Systemic Risk? Does It Apply to Recent JP Morgan Losses?, report, May 24, 2012; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc87231/: accessed June 28, 2017), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.