But it is possible, perhaps likely, that some combination of scale and scope economies, oligopolistic tendencies, path dependence, and chance would nonetheless produce a financial system with a number of firms whose failure could bring about the very serious negative consequences for financial markets described by the domino and fire-sale effects.
In contrast to these first two effects, the contagion effect is not necessarily a function of size at all. The run on money market mutual funds began in September 2008 after the “breaking of the buck” by the Reserve Primary Fund, less because of its size than because of what its vulnerability told investors about the balance sheets of other funds.