Different forces and potential benefits are pushing towards increasing financial globalization. However, globalization can carry important risks. This article reviews the literature on crises and contagion in the context of modern financial crises. In the same time, the article explains the meaning of crises, its origins and the ways of contagion.  In doing so, the article aims to draw the picture of the contagion effect and set it against the background of modern financial crises. The main purpose of this article is to present novel aspects of the contagion effect, hence clarifying the contagion theory that still remains confusing and ambiguous for both the academics and financial markets’ practitioners.  This paper aims to find macroeconomic and financial variables with ability to predict financial crises. The main finding is that the different mechanisms by which a crisis can spread greatly differ from each other both in their causes and implications. Policy measures that do not take these differences into account may do more harm than good.