Before revision:  First, this paper proposes a stylized model of individual bank balance sheets that builds in regulatory constraints. Secondly, three different possible states of a bank, namely the normal state, the stressed state and the insolvent state, are identified with conditions on the bank's balance sheet. Thirdly, the paper models the behavioural response of a bank when it finds itself in the stressed or insolvent states. Importantly, a stressed bank seeks to protect itself from the default of its counterparties, but creates stress in the network by forcing its debtor banks to raise cash. Versions of these proposed models can be solved by large-network asymptotic cascade formulas.
After revision:  Under an assumption we call "locally tree-like independence", we derive large-network asymptotic cascade formulas.