Direct contagionmeans a situation where the direct losses of counterparties of the institution under resolution, resulting from the write-down of the liabilities of the institution, lead to the default or likely default for those counterparties in the imminent.
Indirect contagionmeans a situation where the write-down or conversion of institution's liabilities causes a negative reaction by market participants that leads to a severe disruption of the financial system with potential to harm the real economy.