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# Bank Systemic Risk

## Definition

The potential for problems in one bank or part of the banking system to spread throughout the entire financial system, potentially causing widespread economic disruption. This risk requires careful management and appropriate regulation.

## Source Chapter

Book II, Chapter 2

## Context

Smith analyses how problems in individual banks can spread through the banking system and affect the broader economy. He shows how systemic risk emerges from the interconnected nature of banking operations and the importance of prudent management.

## Economic Domain

Regulation

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