Systemic Risk is the risk that the failure of one financial institution or market event can trigger a collapse of the entire financial system or economy.
Systemic Risk arises due to the interconnected nature of financial institutions, where problems in one area can quickly spread across the entire system.
It is a major concern for regulators and policymakers, especially during financial crises. In India, monitoring and control of systemic risk is handled by the Reserve Bank of India and other regulatory bodies.
"If a major bank collapses and causes panic, leading to failures of other banks, it creates systemic risk."