  We analyze cascades of defaults in an interbank loan market. The novel
feature of this study is that the network structure and the size distribution
of banks are derived from empirical data. We find that the ability of a
defaulted institution to start a cascade depends on an interplay of shock size
and connectivity. Further results indicate that the ability to limit default
risk by spreading the lending to many counterparts decreased with the financial
crisis. To evaluate the influence of the network structure on market stability,
we compare the simulated cascades from the empirical network with results from
different randomized network models. The results show that the empirical
network has non-random features, which cannot be captured by rewired networks.
The analysis also reveals that simulations assuming homogeneity for size of
banks and loan contracts dramatically overestimates the fragility of the
interbank market.
