Systemic risk occurs due to the interconnected nature of the financial sector, where a control failure at a single institution can trigger a domino effect across the wider economy through multiple Contingestion Channels.
Primary Vectors of Financial Contagion
[Primary Bank Default] 
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[Interbank Lending Losses] --------> Triggers counterparty liquidity squeezes
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[Asset Fire Sales Activated] ------> Drives market valuations down for all firms
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[Systemic Credit Crunch] ----------> Direct contraction of real economy lending pipelines

When a failing bank is forced to liquidate its asset holdings quickly to raise cash, it depresses market prices for those assets. This drop in valuation affects the balance sheets of other institutions holding similar assets, potentially triggering margin calls and wider liquidity crises across the financial sector.
 
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