Systemic Risk

Systematic risk refers to that portion of total variability in return caused by factors affecting the prices of all securities. Systemic risk is normally a cascading effect of market risk factors affecting the complete market. Economic, political, and sociological changes are sources of systematic risk

Examples of systemic risk is liquidity risk due to credit crunch or recession. The recent liquidity criris was a result of systemic risk wherein across the whole Banking system, credit lending was suspended.