Definition ∞ Financial system risk refers to the potential for events that could disrupt the stability and functioning of the broader financial infrastructure. This encompasses threats such as market crashes, liquidity shortages, or systemic failures within interconnected institutions. The integration of digital assets and decentralized finance into traditional financial systems introduces new considerations for this risk category. Understanding these potential vulnerabilities is crucial for regulatory bodies and market participants.
Context ∞ The rapid growth and increasing integration of digital assets pose new questions regarding overall financial system stability. Concerns exist about potential spillover effects from crypto market volatility to traditional markets, particularly through stablecoins and institutional investment vehicles. Regulators are assessing how to manage these emerging risks without hindering innovation. Establishing appropriate oversight and robust risk management frameworks remains a priority to safeguard the financial system.
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