The Concept of Systemic Risk

Systemic Risk Centre Special Paper No 5, The London School of Economics and Political Science, August 2014

29 Pages Posted: 10 Aug 2014

See all articles by Paweł Smaga

Paweł Smaga

Warsaw School of Economics (SGH) - Department of Finance and Management; National Bank of Poland

Date Written: August 8, 2014

Abstract

The aim of the study is to analyze the concept of systemic risk. The study reviews a multitude of systemic risk definitions in the literature. In addition, the paper identifies factors that contribute to the build-up of systemic risk (vulnerabilities), the spreading of contagion and provides a conceptual blueprint linking these phenomena. The author proposes to define systemic risk as the risk that a shock will result in such a significant materialization of (e.g. macrofinancial) imbalances that it will spread on the scale impairing the functioning of financial system and to the extent that it adversely affects the real economy (e.g. economic growth). The blueprint intends to break down and clearly categorize the processes of accumulation, materialization and spreading of systemic risk. This should in turn facilitate its identification and subsequent mitigation by assigning appropriate preventive macroprudential measures. As an example, the blueprint is used to analyze systemic risk stemming from FX lending in CEE countries.

Keywords: systemic risk, contagion, macroprudential policy, financial stability

JEL Classification: E50, E61, G21

Suggested Citation

Smaga, Paweł, The Concept of Systemic Risk (August 8, 2014). Systemic Risk Centre Special Paper No 5, The London School of Economics and Political Science, August 2014, Available at SSRN: https://ssrn.com/abstract=2477928

Paweł Smaga (Contact Author)

Warsaw School of Economics (SGH) - Department of Finance and Management ( email )

Warsaw
Poland

National Bank of Poland ( email )

Poland

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