The Global Risks Alliance (GRA)
Contagion is the spread of distress from one institution or market to others beyond what direct losses would explain. Fire sales, runs and confidence effects drive it. A fire sale happens when forced sellers must sell assets quickly at prices below their value, imposing losses on every other holder. This page sets out how contagion and fire sales work, how they are measured, and which authorities decide.
Contagion and fire sales · Financial system · Committee meeting 2
percentile vs history, 0 to 100
red: most connected node
Fig.Systemic risk dashboard. Design wireframe with placeholder names and illustrative values, not a record or a live system.
Financial contagion is the spread of distress from one institution or market to others beyond what direct losses explain. Fire sales, runs on short-term funding and information effects drive it, amplified by leverage and margins. Supervisors, deposit insurers, central banks and boards hold the decisions.
How a failure at one financial centre can spread through settlement links. Design links, not real dependencies.
Amplification pathways across markets. The dossier below sets out how the risk develops, what is measured, where the data come from, how it is modelled and who decides.
When leveraged or redeeming investors must sell, prices fall. Mark-to-market losses hit every holder, triggering further sales by those near their limits.
Uninsured depositors and wholesale funders withdraw at the first sign of trouble. Digital banking and social media can speed runs to hours.
Distress at one firm leads investors to reassess others with similar business models, even without direct links, raising their funding costs.
Leverage, liquidity mismatch, margin practices and accounting rules each amplify. Together they turn a modest shock into a system event.
Each term as this page uses it. Where a standard-setting body defines the term, the wording follows that body.
| Term | Definition |
|---|---|
| Fire sale | A forced sale of assets at prices below fundamental value, which imposes losses on other holders. |
| Bank run | Rapid withdrawal of deposits or funding by creditors who fear a bank's failure. |
| Information contagion | Distress spreading to firms that look similar to a failed one, without direct financial links. |
Each indicator carries its unit, its cadence, the kind of source behind it and the evidence label a value would carry. No values are shown: a programme supplies them under its own authority.
| Indicator | Unit | Cadence | Source type | Label |
|---|---|---|---|---|
| Fire-sale vulnerability measure | estimated losses from forced sales, currency | quarterly | Supervisory models | MODELLED |
| Uninsured deposit share | percent of deposits | quarterly | Bank regulatory reports | OFFICIAL |
| Deposit outflow speed in stress episodes | share of deposits per day | per episode | Supervisory reviews | REPORTED |
| Credit default swap spreads of financial institutions | basis points | daily | Market data | OBSERVED |
| Conditional value at risk measures | currency or percent | periodic | Academic and central bank estimates | MODELLED |
| Equity return correlation across financial firms | correlation, dimensionless | daily | Market data | OBSERVED |
The topic as a computational graph: named sources feed the methods, an evidence review gates the outputs, and the decisions stay with the authorities that hold them.
Fig. 02Nodes carry their type, two metric rows and a state; connectors show what feeds what; dashed frames name the owners; the timeline is the cadence. Design of the pipeline, not a record of a run.
Named public datasets and institutional records, each with its licence class. Sources by agreement are used only under their terms and never republished.
| Source | What it gives | Licence class |
|---|---|---|
| Federal Reserve review of the supervision of Silicon Valley Bank | Account of a rapid deposit run and supervisory response | Public domain |
| Basel Committee report on the banking turmoil | Lessons from bank failures in a recent stress episode | Free, BIS terms |
| NYU V-Lab SRISK estimates | Market-based systemic risk measures | Free to read, terms to check |
| ECB Financial Stability Review | Analysis of contagion channels in the euro area | Free, ECB terms |
| FDIC quarterly banking profile | Deposit composition and bank condition | Public domain |
Financial Stability prepares evidence. The decisions below are taken by the authorities named, under their own rules, and never by the platform.
| Who decides | The question | Evidence this page serves |
|---|---|---|
| Prudential supervisors | Whether funding concentration and uninsured deposits need action | Funding data and run episode evidence |
| Deposit insurers and legislators | How deposit insurance coverage is set | Deposit composition and run evidence |
| Central banks | How lender of last resort facilities are designed and accessed | Run speed evidence and collateral data |
| Bank boards | How much reliance on uninsured and wholesale funding to accept | Funding structure benchmarks and stress evidence |
Capital limits, margin calls, redemptions and risk limits that compel institutions to sell.
How losses spread to all holders of the assets sold.
Information contagion when uncertainty about exposures causes withdrawal from sound institutions.
Buffers, transparency, resolution tools and backstops.
Fire sales occur when sellers must sell quickly and natural buyers are constrained. Prices fall below fundamental values, imposing mark-to-market losses on everyone holding similar assets and potentially forcing further sales.
Direct contagion runs through bilateral exposures: a failing institution cannot pay its creditors, who then face losses. Research suggests direct exposures alone often explain less contagion than indirect channels.
Indirect contagion runs through common holdings and prices, through funding markets and through information. When investors cannot tell who is exposed, they may withdraw from all similar institutions.
Procyclical rules and practices, such as mark-to-market accounting, value-at-risk limits and margin models, can amplify fire sales by requiring action at the worst moment, even when each rule is sensible on its own.
Breaking contagion requires credible buffers, information that distinguishes sound from unsound institutions, and tools to resolve failing firms without disorderly sales.
| Method or data | What it shows | Its limit |
|---|---|---|
| Fire-sale models | Price impact of forced selling | Price impact estimates are uncertain |
| Common holdings data | Overlap among investors | Holdings reporting lags |
| Event studies | Market reactions to failures | Confounding events |
| Network simulation | Combined direct and indirect contagion | Assumption-dependent |
The current service level is R0: information and enquiries. An enquiry receives a reference and names the next step; applications, payments, compute allocations and registrations open only when their team, terms and review capacity exist.