In the last few years, a host of disturbances arose in a whole range of financial and derivative markets. I review a few episodes which exhibited huge increases of volatility and liquidity problems and which had a potential for spreading over, thus entailing systemic risk. Common lessons can be drawn from the episodes as far as sources of systemic risk are concerned. Three main factors conducive to potential spillover effects between markets stand out : destabilising price dynamics under conditions of stress, uncertainty about credit risk assessment, vulnerability to market liquidity shortfalls. Market illiquidity can force banks acting as market makers to rely on dynamic hedging and to effectively convey the liquidity gap from one market to another under the pressure of one-way selling. Numerous reasons account for the possibility of one-way selling in present day markets where competition is intense and price expectations are affected by complex parameters.
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