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ERM concepts and Risk categorisation [55]

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Bullet points include: Financial contagion arises Where losses in one area spread to another Where default of one organisation causes others  to make losses and possibly themselves default Can take several forms (c.f. 2007-09 credit crisis), e.g. Runs on institutions like banks. May propagate because of coordination effects – once bank perceived likely to fail it may become ‘rational’ for its depositors to contribute to a run that leads to it defaulting Opaqueness of solvency of interlinked financial firms may lead to lack of confidence, credit / liquidity rationing, systemic risk etc. Contagion within a corporate group

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