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We introduce a dynamic and stochastic interbank model with an endogenousnotion of distress contagion, arising from rational worries about futuredefaults and ensuing losses. This entails a mark-to-market valuation adjustmentfor interbank claims, leading to a forward-backward approach to the equilibriumdynamics whereby future default probabilities are needed to determine today'sbalance sheets. Distinct from earlier models, the resulting distress contagionacts, endogenously, as a stochastic volatility term that exhibits clusteringand down-market spikes. Furthermore, by incorporating multiple maturities, weprovide a novel framework for constructing systemic interbank term structures,reflecting the intertemporal risk of contagion. We present the analysis in twoparts: first, the simpler single maturity setting that extends the classicalinterbank network literature and, then, the multiple maturity setting for whichwe can examine how systemic risk materialises in the shape of the resultingterm structures.

Endogenous distress contagion in a dynamic interbank model: how possible future losses may spell doom today