Systemic risk

Systemic risk is the risk of damage to the entire financial system resulting from the collapse of an individual institution or group of them. Regulators had to reconsider this subject after the financial crisis of 2007-09 when some companies were deemed “too big to fail.” Large commercial banks certainly fall into this category, but the collapse of AIG, an insurance company, indicated that the potential for systemic risk was widespread. See also macroprudential regulation.