Modern banking systems are highly interconnected. Despite various bene...ts, linkages between banks carry the risk of contagion. In this paper I investigate whether banks can commit ex-ante to mutually insure each other, when there is contagion risk in the ...nancial system. I model banks'decisions to share this risk through bilateral agreements. A ...nancial network that allows losses to be shared among various counterparties arises endogenously. I characterize the probability of systemic

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... de...ned as the event that contagion occurs conditional on one bank failing, in equilibrium interbank networks. I show that there exist equilibria in which contagion does not occur.