Babus, Ana - Fondazione ENI Enrico Mattei (FEEM) - 2007
implications for contagion risk. In particular, we model a network formation process in the banking system. Banks form links order … to reduce the risk of contagion. The network is formed endogenously and serves as an insurance mechanism. We show that … banks manage to form networks that are resilient to contagion. Thus, in an equilibrium network, the probability of contagion …