Systemic risk is the risk inherent to the entire market or entire market segment brought on by a major failure of a financial institution. Thus if a major bank or financial institution fails, it could being other all the others down, like a row on dominos and break the whole financial system and wipe out confidence. Or putting in bluntly, the risk that the failure of one financial institution such as a bank could cause other interconnected institutions to fail and harm the economy as a whole.

The US Treasury Department on Mon 8th July made an announcement.

[http://www.treasury.gov/initiatives/fsoc/designations/Pages/default.aspx]

It now has included AIG and GE Capital to the list of companies that need extra supervision by the US Federal Reserve. Remember back in September 2008, when AIG got into trouble, The Federal Reserve Bank of New York lent $182 Billion (1.21% of the US National debt = $182 Billion) to prevent it from failing, in Oct 2008, in the UK, The Bank of England had to lend £36.6 Billion to RBS and £25.4 Billion to HBOS. Examples of institutions that are too important to fail, thus the term Systemic Risk.