Systemic risk

The system risk (systemic risk ) is a risk that may affect the function or survival of an entire system. The system risk is to be distinguished from specific risks, of which only certain system participants are always affected, without compromising the system as a whole.

Systemic risk

Systemic risks are inherent in all complex technical and organizational systems and are due inscrutable effect relationships in the system difficult to predict (see Charles Perrow, "Normal Accidents" ).

In the financial sector systemic risk is the risk that the financial collapse of a market participant spreads to other, originally legally and economically independent market participants and ultimately may cause functional collapse Significant parts or the entire financial system. Systemic risk is from an economic perspective, a negative external effect of financing activities in the capital markets. Any use not only local financial crisis caused by the realization of systemic risk. This effect effect presupposes an initial event and transmission channels.

Initial event

Starting point for the realization of systematic risk is always an unexpected by market participants initiating event. It is located at on a regular basis ( a ) individual market participant (s). Adverse shocks that an economy as a whole have meetings, only such preparatory action that adaptation pressure is created, some market participants can not cope in the necessary time to. Other events (eg, accounting fraud, becoming aware of serious (and unintentional ) mispricing ) that a significant, lasting impact on the net assets, financial position and earnings of a market participant because they lead to massive write-offs or write-downs, are suitable for initial events.

Reliable transmission channels

The economic effects of initial events can initially on existing legal relationships between market participants - are transferred - in particular contractual relationships. Contracts that have future benefits to the subject, always run the risk that one party to the agreed service time does not want to provide the service or can ( counterparty risk and credit risk). Then arises impairment, the income effect in the balance sheet in the form of a loss for the other party. With increasing exposure amounts increases the importance of this transmission channel.

Informational transmission channels

There are also informational transmission channels. Here draw shareholders and creditors ( and at banks also: depositors ) due to the failure of a market participant to draw conclusions about the financial implications for their contractors. With incomplete information, they close the knowledge gap by ( pessimistic ) expectations formation and my to recognize a failed economic context for market participants, although this relationship does not necessarily exist objectively muss.Anknüpfungspunkt is often the similarity of the business model

This transmission channel can be powered by herd behavior, in which the uninformed players uninformed actions of others as informed action ( mis) interpret and align their own actions accordingly. Also, the widespread loss of confidence among market participants themselves, which can lead to a liquidity crisis in the market, can - at least in the early phase - interpret as a kind of herd behavior.

Risk - mitigation strategies

Financial market participants are making great efforts to adapt specific risks of their own risk-bearing capacity. They avoid concentration risk and diversify risks in their portfolios (see diversification). By cleverly combining the individual risks in a portfolio, the overall risk of the portfolio (see portfolio theory ) can be reduced to a non- diversifiable residual risk. In portfolio theory for this is also the term " Systematic risk " are used.

Measurement of systemic risk

Market participants and regulators around the world are eager to measure systemic risk reliably. The qualitative and quantitative methods, however, stuck still in its infancy. Core problem is the complexity of an ever-changing economic activity: Contractual relationships entered into and end in time; Expectations of other market participants are highly situational and difficult to predict. Standard measurement experiments can therefore make only a vague approximation to the actually existing risk exposure:

• CoVaR approach:
• Network models
• Scoring models