We propose a network-based structural model of credit risk to demonstrate how idiosyncratic and systemic shocks propagate across the banking system and evaluate the costs. The banking system is built as a network of heterogeneous banks which are connected with one another. In such a system,...

Paper presents a mechanism for measuring stability of banking system based on the default risk of nonbanking debtors and contagion potential of banks. The approach is tested on 1,000 randomized network topologies of 40 real banks. Banking system is treated as a complex system and stability is...