We investigate the impact of the banking system concentration on the perception of financial institutions interdependencies, as measured by the correlations of their return on assets. This correlation is observed by the market, and may provide an indicator of systemic risk potential, which we argue represents an indirect contagion channel. By changing this correlation, the degree of concentration may change the systemic risk exposure of the banking sector. Our findings suggest the existence of an indirect contagion channel in Brazil, and that a more concentrated financial system is associated with an increase in the potential of systemic risk among banks with similar characteristics of credit volume, leverage and ownership (state or private-owned). Our findings call attention to the implications of financial system consolidation to the contagion of idiosyncratic shocks. Banking consolidation may bring benefits by improving the diversification of the portfolios of banks, reducing their idiosyncratic risks, but may also increase the systemic risk, by increasing the probability of an idiosyncratic shock be interpreted as an aggregate shock.