The domino effect is a phenomenon where a single event triggers a chain reaction of similar events, each causing the next one in line to occur. It’s a metaphor often used to describe how a small initial occurrence can lead to a series of increasingly substantial consequences, much like a line of dominos falling after one is pushed

It is especially pertinent in the context of finance and economics when talking about systemic risk. During a financial crisis, for instance, investors may withdraw their money or engage in panic selling as a result of losing faith in other financial institutions due to the failure of any one of them.

It showcases the interconnectedness and interdependence within the financial systems and economies. It emphasizes how shocks in one area of the system can spread swiftly to other areas causing broad instability. As a result, the identification and management of systemic vulnerabilities is prioritized by the policy makers and regulators to minimize the possible domino effect scenario.

In summary, the domino effect shows possibility of cascading implications of outwardly isolated events and emphasizes understanding of systemic risks and implementing measures to improve the resilience of financial institutions and economies.