risk contagion

Risk contagion refers to how financial problems or instabilities in one part of the economy or market can spread to other parts, amplifying the overall risk. Just like a contagious disease, if one bank or financial institution faces trouble, it can cause a loss of confidence, prompting others to also experience difficulties or withdrawals. This domino effect can lead to broader economic instability. Essentially, risk contagion highlights how interconnected systems can transmit vulnerabilities, making isolated issues escalate into wider crises if not managed properly.