What Is Systemic Risk, and Do Bank Regulators Retard or Contribute to It?

George G. Kaufman and Kenneth E. Scott provide one of the most often cited definitions of systemic risk as “the risk or probability of breakdowns in an entire system, as opposed to breakdowns in individual parts or components, and is evidenced by co-movements (correlations) among most or all parts” (p. 371). They explain how systemic risk arises in the banking sector, then analyze different protections, regulations, and recommendations for reducing it.