We study the effect of counterparty risk on the stability of a banking system using stylized banking cascade models calibrated with UK exposure and balance sheet data from regulatory reports. We observe the development of a fragile phase, at which small perturbations to banks' capital reserves...

Systemic risk, in a complex system with several interrelated variables, such as a financial market, is quantifiable from the multivariate probability distribution describing the reciprocal influence between the system's variables. The effect of stress on the system is reflected by the change in...