systematic risk

Systematic Risks and Impacts on the Economy
Name
Institutional Affiliation
Systematic risks are the risks that occur due to parties failing to diversify risks thereby affecting the general economy (Kubinschi & Barnea, 2016). A failing bank from systematic risk, for example, the management risks, operational risks, or project risk joins hand with other financial stakeholders including the financial markets, the stock exchange markets and form a marketplace from where to match the demand and supply of money. Banks are the most conservative forms of the medium of exchange for money, and the people trust them with their money and savings. If these institutions fail to give the required access to parties in accessing their savings, the financial system will undergo very adverse conditions which will affect the entire economy, savings, the consumer confidence, and hampers the investments in the marketplace.
Savings made by individuals and invested in the stock markets, financial products available and the mutual funds will not be readily accessible. Losing the liquidity in the loss of access to their savings will halt the functioning of the stock markets as trading shares will be less frequent without funds (Kubinschi & Barnea, 2016). The banks are considered the safe havens for individuals, and with their failure will further result in losing the consumer confidence such that parties will no longer trust any financial market. The cash flows to the stock market will be stopped, and the investors have any funds there will need to withdraw their investments for fear of losing access.

Massive withdrawals will crumble the stock market as investors panic, and the value of the stocks will decline. The consequent fall in purchasing power is almost inevitable as the value of the domestic currency drops to create chaos in the country. The bailout packages were formed as means through which governments would restore the consumer confidence and rescue the financial institutions.
Reference
Kubinschi, M. & Barnea, D. (2016). Systemic risk impact on economic growth – the case of the cee countries. Retrieved from http://www.ipe.ro/rjef/rjef4_16/rjef4_2016p79-94.pdf