Contagion can spread across the financial system even if banks share no direct interbank lending exposures, driven by Asset Commonality and fire-sale externalities.

[Bank Alpha Experiences Liquidity Shocks] 
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[Firesales Sovereign Debt Portfolios] --------> Depresses market valuations for those bonds
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[Bank Beta Marks Down Matching Portfolios] ---> Triggers automatic capital ratio violations
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[System-Wide Balance Sheet Contagion] --------> Realizes systemic asset devaluations

When multiple institutions hold similar asset portfolios on their balance sheets, a distressed asset sale by one bank can depress market valuations across that entire asset class. This drop forces competing institutions to mark down their portfolios to fair market value, eroding capital reserves and triggering margin calls across the financial system without requiring direct counterparty default links.