This implies that changes to the fiscal framework were more straightforward in these cases. Central banks’ role in containing the spreading of instability Another relevant historical episode of significant contagion risks is the Russian sovereign debt default of August 1998. This event started a dramatic chain reaction, which included the subsequent failure of the hedge fund Long-Term Capital Management.
As Russia defaulted and its currency collapsed so did its domestic banking system. The stress spread across the globe, and a number of international investors, in particular financial institutions, made large losses. Stock prices dropped sharply across emerging markets and the developed world.