Contagious defaults in inter-bank networks

This paper investigates systemic risk and contagion processes in the inter-bank network using network science methods. The inter-bank network consisting 10 banks, similar to the real world inter-bank networks, is studied to understand the contagion process in the network regarding changes in the network structure, as well as changes in the characteristics of components. Simulations support the claim that heterogeneous networks are more resilient to contagious shocks, while systemic shocks are more problematic in homogeneous networks. The study also shows that more interconnections among banks could accelerate or block contagion proces depending on the structure of the network and seniority of debts in the inter-bank network as well.