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FMRI (F) Systemic Risk Systemic Risks can be described as a succession of cascading effects that can take place under specific conditions in several kinds of complex systems and which ultimately lead to a catastrophic situation. These risks can occur in a group of engineering plants, an arrangement of ecological structures, a set of closely-linked financial institutions and so on…
The systemic series of events usually occur without signaling any prior warning to the system and progress rapidly resulting in a significant deterioration in the existing state of affairs. Once the cascading events start taking place one after another, it becomes very difficult to put a stop to the process. Systemic risks can degrade a stable existing system to an extremely low state, where the latter performs much below its potential level for a considerable period of time. More serious systemic risks and their resulting events can even destroy an established system altogether. Financial analysts believe that the global financial crisis of 2008 was actually triggered by the systemic risks existing in the US banking sector. The international financial regulatory institutions had not been strict about enforcing certain banking regulations like the Basel II norms, which had been formulated to insure the against these risks. As a result, the commercial financial institutions started extending risky business loans which were not properly insured. Ultimately, the international financial system collapsed leading to the large scale global recession of 2008. Once an established system collapses, it usually takes a long time for it to regain its original functioning. However, all systems are not strong enough to recover. ...
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