Int. J. Monetary Economics and Finance, Vol. 9, No. 2, 2016 115 Copyright © 2016 Inderscience Enterprises Ltd. Fragility and contagion within European Union’s banking system: the network prospective Muhammad Mohsin Hakeem* and Ken-ichi Suzuki Graduate School of Economics and Management, Tohoku University, Sendai, Japan Email: hakeem514@yahoo.com Email: ksuzuki@econ.tohoku.ac.jp *Corresponding author Abstract: The 2007 to 2009 financial crises also known as ‘global financial crisis’ has shown the importance of contagion and interconnectedness among financial nodes. This trickles down the crisis effect to small nodes and whole system becomes fragile. We analysed selected EU members banking system network in terms of their pre- and post-crisis status. By using the matrix of bilateral obligations and their capital levels, conducted stress test simulations for both periods. Different levels of shocks entail most aspects of stress tests in terms of identifying networks strength and interconnectedness. Short-terms to long-term clearing scenarios are used to identify strong and weak nodes within system during both time frames. Default probabilities for different levels of shocks shows realistic picture of the banking systems, as they received huge bailouts and financing from governments and regulators. Default probabilities are used to identify the level of difficulty faced by particular institution or whole system. Keywords: banking network; bilateral exposures; contagion; credit shock; economic policy. Reference to this paper should be made as follows: Hakeem, M.M. and Suzuki, K-i. (2016) ‘Fragility and contagion within European Union’s banking system: the network prospective’, Int. J. Monetary Economics and Finance, Vol. 9, No. 2, pp.115–131. Biographical notes Muhammad Mohsin Hakeem is a MEXT fellow (Ministry of Education, Culture, Sports, Science and Technology, Japan) and doctoral student at Graduate school of economics and management, Tohoku University, Sendai, Japan. Ken-ichi Suzuki is an Associate Professor at Graduate School of Economics and Management, Tohoku University, Sendai, Japan. This paper is a revised and expanded version of a paper entitled ‘Identifying fragile links from financial network prospective: the case of Eurozone banking systems’ presented at SIBR Conference on Interdisciplinary Business and Economics Research, Kimberley Hotel, Hong Kong, 27–28 September 2014.