Word of the Day
March 14, 2023
Contagion
The spread of an economic crisis or financial disturbance from one market, institution, or country to others; in banking, the risk that the failure of one institution triggers failures in others through interconnected exposures or loss of confidence.
From Latin 'contagio' meaning 'a touching, contact,' derived from 'contingere' meaning 'to touch closely.' Originally used in medical contexts to describe the spread of disease through contact, the term was later adopted in economics and finance to describe the spread of financial crises.
Usage Examples
- The Federal Reserve moved quickly to prevent contagion from the Silicon Valley Bank failure from spreading to other regional banks.
- Economists warned that the real estate market collapse could trigger financial contagion throughout the global banking system.
- The government's decision to guarantee all deposits was designed to stop contagion by restoring confidence in the banking system.
From the Show
The concept of contagion emerged during Kurt Gerwitz’s analysis of the Silicon Valley Bank collapse. Gerwitz explained how the second largest bank failure in American history raised concerns about whether other banks holding similar unrealized losses in Treasury bonds would face runs. With $609 billion in unrealized losses across all banks’ books, the risk of contagion was a primary concern for regulators. Listen to the full discussion in Listen to the full episode.