Publication

This paper analyzes cascades of defaults - a series of defaults propagated by complex dependencies in the market - in the interbank loan market. It finds that the ability of a defaulted institution to start a cascade depends on an interplay of shock size and connectivity. The authors conclude that the fragility of the interbank loan market has increased significantly from 2006 until 2011 and that the ability to limit default risk by spreading the lending to many counterparts decreased with the financial crisis.