Before revision:  However, a mathematical understanding of instability in relation to the network topology is still lacking. In a model financial network, we show that the origin of instabilityresides in the presence of specific types of cyclical structures , regardless of many of the details of the distress propagation mechanism.
After revision:  However, in financial network models, the details of how financial institutions interact typically play a decisive role, and a general understanding of precisely how network topology creates instability remains lacking. Here we show how processes that are widely believed to stabilise the financial system, i.e. market integration and diversification, can actually drive it towards instability, as they contribute to create cyclical structures which tend to amplify financial distress, thereby undermining systemic stability and making large crises more likely. This result holds irrespective of the origin of instabilityresides in the presence of specific types of cyclical structures , regardless of many of the details of the distress propagation mechanism.