To estimate the likelihood of a financial crisis at any given time, two business professors have developed a system that treats entire countries’ economies like failing banks, Quartz reports. In their new method, the researchers used a measurement called SRISK, which is typically used to evaluate how banks and other financial institutions are coping during market downturns. The scientists collected the measurement across entire countries and then combined the SRISK information with stock market data to assess the chance of a financial crisis in that country. The chance of financial crisis in the United States is low right now, they found, but that could change quickly as observed in past economic downturns. The research also highlights the interconnectedness of the global economy—financial instability in one country increases the probability of a crisis in others, the team reports this week in the Proceedings of the National Academy of Sciences.
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