Nevertheless, policy makers should act to stem pure contagion risks if data or analytical tools show sizeable spillover risks and there is no convincing evidence that this is caused primarily by economic fundamentals or common shocks. 2  Coase, “The problem of social cost”, Journal of Law and Economics, 1960.
3  For example, Chen, “Banking panics: The role of the first-come, first-served rule and information externalities, Journal of Political Economy, 1999, develops a model in which the presence of aggregate shocks makes bank contagion more likely. 4  See Hartmann, Straetmans and de Vries, “Banking system stability: A cross-Atlantic perspective”, Carey and Stulz (eds.