Financial contagion refers to a scenario in which small shocks, which initially affect only a few financial institutions or a particular region of an economy, spread to the rest of financial sectors and other countries whose economies were previously healthy, in a manner similar to the transmission of a medical disease. Financial contagion happens at both the international level and the domestic level.
At the domestic level, usually the failure of a domestic bank or financial intermediary triggers transmission when it defaults on interbank liabilities and sells assets in a fire sale, thereby undermining confidence in similar banks. An example of this phenomenon is the failure of Lehman Brothers and the subsequent turmoil in the United States financial markets.
International financial contagion, which happens in both advanced economies and developing economies, is the transmission of financial crisis across financial markets for direct or indirect economies. However, under today's financial system, with large volume of cash flow, such as hedge fund and cross-regional operation of large banks, financial contagion usually happens simultaneously both among domestic institutions and across countries. The cause of financial contagion usually is beyond the explanation of real economy, such as the bilateral trade volume.
Read more about Financial Contagion: History, Explanations, A Simple Empirical Model, Controversy, Policy Implications
Other articles related to "financial contagion, financial, contagion":
... Financial contagion refers to a scenario in which small shocks, which initially affect only a few financial institutions or a particular region of an economy, spread to the rest of financial sectors and other ... Financial contagion happens at both the international level and the domestic level ... At the domestic level, usually the failure of a domestic bank or financial intermediary triggers transmission when it defaults on interbank ...
... See also Financial regulation See also Wall Street reform Financial contagion is one of the main causes of financial regulation ... How to make domestic financial regulation and plan the international financial architecture to prevent financial contagion become the top priority for ... At international level, under today's modern financial systems, a complicated web of claims and obligations link the balance sheets of a wide variety of intermediaries, such as hedge funds and banks, into a global ...
... See also Financial regulation See also Wall Street reform Financial contagion is one of the main causes of financial regulation ... How to make domestic financial regulation and plan the international financial architecture to prevent financial contagion become the top priority for both domestic financial regulators and international society, say, G ... At international level, under today's modern financial systems, a complicated web of claims and obligations link the balance sheets of a wide variety of intermediaries, such as hedge funds and banks, into a ...
... There are several branches of literatures explaining the mechanism of financial contagion ... relating such crises to various monetary and financial sector vulnerabilities and trade factors. 1990s, but also the observed historical pattern of contagion ...
Famous quotes containing the words contagion and/or financial:
“Who knows but this hill may one day be a Helvellyn, or even a Parnassus, and the Muses haunt here, and other Homers frequent the neighboring plains?... It was a place where gods might wander, so solemn and solitary, and removed from all contagion with the plain.”
—Henry David Thoreau (1817–1862)
“The woman who does her job for society inside the four walls of her home must not be considered by her husband or anyone else an economic “dependent,” reaching out her hands in mendicant fashion for financial help.”
—Mary Barnett Gilson (1877–?)