Systemic Risk Regulation

Systemic risk regulation involves monitoring and managing dangers that could cause widespread problems in the financial system, such as a major bank failure triggering a broader economic crisis. Regulators establish rules and safeguards to prevent these risks from spreading, ensuring financial stability. This includes oversight of large institutions, risk assessment, and contingency planning to protect the economy from shocks that could impact many markets, institutions, and individuals simultaneously. In essence, it aims to maintain confidence and prevent a small issue from escalating into a large-scale financial breakdown.