As economic entities become increasingly interconnected, a shock in a
financial network can provoke significant cascading failures throughout the
system. To study the systemic risk of financial systems, we create a bi-partite
banking network model composed of banks and bank assets and propose a cascading
failure model to describe the risk propagation process during crises. We
empirically test the model with 2007 US commercial banks balance sheet data and
compare the model prediction of the failed banks with the real failed banks
after 2007. We find that our model efficiently identifies a significant portion
of the actual failed banks reported by Federal Deposit Insurance Corporation.
The results suggest that this model could be useful for systemic risk stress
testing for financial systems. The model also identifies that commercial rather
than residential real estate assets are major culprits for the failure of over
350 US commercial banks during 2008-2011.Comment: 13 pages, 7 figure
