Financial contagion may results in lost integrity in the entire financial system. to prevent this from happening, the fed may act as the lender of last resort and make short-term emergency loans to member banks, as needed.
Monetary contagion refers to "the spread of market disturbances – totally on the disadvantage – from one us of a to the opposite, a procedure discovered thru co-moves in trade quotes, stock fees, sovereign spreads, and capital flows.
The virus that causes a staph infection is an example of contagion. The unfolding of staph contamination from one patient to any other because of close contact in a sanatorium is an example of contagion. The unfolding of a risky political concept like communism from one person to another is an instance of contagion.
In line with Schoenmaker (1996), the hazard of contagion in banking is a systemic hazard which can be defined because the chance that financial difficulties at one or greater bank(s), can also spill over to a large number of other banks or to the financial gadget as a whole.
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