RISK OF CONTAGION AND THE STRUCTURE OF INTERBANK MARKET

This study considers the direct interconnectedness as the only source of interbank systemic risk and examines the level of transmission effect could be created by the exogenous shock through the interbank network. In general, the interbank system is created as a direct and weighted network whose nodes are banks. Every node is illustrated by its balance sheet characteristics and linked the interbank lending between those banks. If one of these banks run into a trouble and cannot pay back to its counterparties, it becomes default on its obligations that lead to the Domino effect. After the contagion finishes, we examine the effect of the shock based on the number of banks defaulted and the fraction of total asset lost