We present a dynamic model capturing three distinctive features of the recent subprime crisis and the related consequences on the banking system stability. The first feature is the network form of the management / mutualisation of risk by the way of vehicles of credit enhancement (CDOs, SIVs and conduits). The second is the distortion of risk appreciation during this risk management. This distortion is due to i) the institutional mispricing in the evaluation of these products by the rating agencies, ii) the contrast between the apparent dilution of risk during its diffusion among the system and its concentration in the mezzanine tranches certificates, and to iii) the existence of mimetic effects. The third feature is the occurrence of an external macroeconomic shock (in the current circumstance, this shock is a sudden increase of interest rates). We first consider a mean field version of the model in which rational banks able to choose their level of connectivity with their partners via CDOs in order to optimize their expected utility index, the latter depending on the return of their portfolios and on level of risk misperception / evaluation. The dynamics of the model deals with the joint evolution of the connectivity of the banks and of the level of misperception of risk. We show analytically that this dynamics exhibits two stationary equilibria, the low one (low levels of connectivity and of misperception of risk) is a saddle point and the high one (high levels of connectivity and of misperception of risk) is unstable. We comment these results and analyse the contingency of the crisis to the nature of the macroeconomic shock. We then explore numerically the full version of the model with heterogeneity in the characteristics of the banks and the network of the vehicles of credit enhancement. We analyse the consequences on the occurrence of each form of stable equilibria and unstable outcomes.

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