In finance, systemic risk can be interpreted as "financial system instability, potentially catastrophic, caused by idiosyncratic events or conditions at financial intermediaries."[1]​ It refers to the risk created by interdependencies in a system or market, in which the failure of one entity or group of entities can cause a cascading failure"), which can sink the entire system or market.[2]​.

It is important not to confuse this term with systematic risk, which refers to the common risk for the entire market.[3]​.

The easiest way to understand systemic risk is the inverse of a protective policy. Just as governments and institutions that monitor markets establish policies and rules to safeguard the interests of market participants, all participants are intertwined in a network of dependencies that arise from sharing exposure to the same economic factors, and that are under the control of the same regulatory mechanisms.

Systemic risk should not be confused with market risk, since the latter is specific to the item you wish to buy or sell. This type of risk can be mitigated. For example, consider a portfolio of perfectly balanced, or diversified, investments. In this case it can be said that the market risk has been canceled. However, if an economic downturn occurs and the overall market takes a dive, this diversification may be of little importance. This is the systemic risk of the portfolio.

The essence of systemic risk is the correlation of losses. Systemic risk has the problem that it is very difficult to evaluate. For example, while econometric estimates and research on various industry cycles provide important information for predicting recessions, systemic risk information is usually very difficult to obtain, since interdependencies in financial markets play a fundamental role. If a bank fails and must sell all its assets, the fall in the prices of these assets can result in liquidity problems for other banks, thus creating panic in the interbank system.

A frequent concern is the potential fragility of some financial markets. If participants trade in levels on their capital bases, the failure of any participant can deprive the others of liquidity, producing a domino effect that exposes the entire market to systemic risk.[4]​.

• - Systemic risk, Banco de México.

• - CAPM.