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Systemic threat

A threat to an entire system rather than just to some part of the system. The financial system is subject to systemic threat because of the many linkages between the financial companies. For example, bonds issued by one financial company can be held as assets by another financial company. If the issue defaults then the holder may be placed in financial difficulties which, in turn, may deteriorate the standing of the financial companies to which the holder is linked, creating a financial contagion leading eventually to the collapse of the entire system. Such systemic threats explain the willingness of governments to provide very large amounts of financial support to the banking sector. See also financial crisis; troubled asset relief program.

Reference: Oxford Press Dictonary of Economics, 5th edt.