We also model the contagion process in a relatively mechanical fashion, holding balance sheets and the size and structure of interbank linkages constant as default propagates through the system. Arguably, in normal times in developed nancial systems, banks are suf ciently robust that very minor variations in their default probabilities do not affect the decision of whether or not to lend to them in interbank markets. Meanwhile, in crises, contagion spreads very rapidly through the nancial system, meaning that banks are unlikely to have time to alter their behaviour before they are affected ñ as such, it may be appropriate to assume that the network remains static. Note.
