  We study a credit risk model which captures effects of economic interactions
on a firm's default probability. Economic interactions are represented as a
functionally defined graph, and the existence of both cooperative, and
competitive, business relations is taken into account. We provide an analytic
solution of the model in a limit where the number of business relations of each
company is large, but the overall fraction of the economy with which a given
company interacts may be small. While the effects of economic interactions are
relatively weak in typical (most probable) scenarios, they are pronounced in
situations of economic stress, and thus lead to a substantial fattening of the
tails of loss distributions in large loan portfolios. This manifests itself in
a pronounced enhancement of the Value at Risk computed for interacting
economies in comparison with their non-interacting counterparts.
