ERM Glossary: Contagion
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Contagion refers to a situation where occurrence of one risk
leads to occurrence of another.
It can refer to contagion between different entities within
the same corporate group (e.g. failure of a group company can disrupt activity
at another, leading to other types of risk becoming manifest.
More usually, it refers to a spiral across companies and
potentially across entire economies. For example, failure of one or more key
financial institutions may lead to failures in other firms or a broader
weakness in the real economy. Contagion is particularly great when asset values
are very sensitive to confidence as is the case for banks and for sovereign
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