On This Page1992, No. WP 92-12

Bank Contagion: Theory and Evidence
Last Updated: 06/12/92

Contagion is a term often used to describe the spillover of the effects of shocks from one or more firms to others. It is widely considered to be both more probable to occur in banking than in other industries and to be more serious when it does occur. Bank (depository institution) contagion is of particular concern for adverse shocks, such as failures, that may be transmitted in domino fashion not only to other banks and the banking system as a whole, but beyond to the entire financial system and the macroeconomy.