---
title: Signalpha Default Cascade Simulation 2026
emoji: 🏦
colorFrom: red
colorTo: purple
sdk: docker
app_port: 7860
license: mit
short_description: 'Signalpha: Default Cascade Simulation'
---

# Default Cascade Simulation of Banks 2026

Interactive simulation modeling how commercial real estate (CRE) defaults cascade through U.S. bank balance sheets, with optional unrealized securities losses. Built for the [Signalpha](https://signalpha.substack.com) Substack publication.

## What it does

Uses Q3 2025 FFIEC Call Report data for 147 U.S. banks (over $10 billion in assets, $20.2 trillion in combined assets) to simulate the impact of CRE losses on bank capitalization. Displays two horizontal stacked bar charts:

1. **Tangible Equity Ratio** — Banks categorized by Prompt Corrective Action (PCA) thresholds: Well Capitalized (>=8%), Adequately Capitalized (>=4%), Undercapitalized (>=2%), Critically Undercapitalized (>=0%), Insolvent (<0%)
2. **Estimated CET1 Ratio** — Banks categorized by Basel III thresholds: Well Capitalized (>=6.5%), Undercapitalized (>=4.5%), Below Basel III Minimum (>=0%), Insolvent (<0%)

Losses are calculated as: `CRE Losses = CRE Total x Default Rate x LGD`. When unrealized losses are toggled on, they are added to CRE losses before adjusting equity.

## Controls

- **CRE Default Rate** (0-50%): Percentage of CRE portfolio that defaults
- **Loss Given Default** (0-100%): Recovery shortfall on defaulted loans
- **Average RWA Ratio** (50-75%): Risk-weighted assets as percentage of total assets (for CET1 calculation)
- **Unrealized Losses**: Toggle to include unrealized losses on investment securities

## Features

- Download figure as PNG (via html2canvas)
- Download underlying data as CSV
- In-app documentation panel

## Run locally

```bash
pip install -r requirements.txt
python app.py
# Open http://localhost:8050
```

## Deploy to Hugging Face Spaces

Uses Docker SDK. See `Dockerfile` for build configuration.

## Data source

[The Banking Initiative at Florida Atlantic University](https://business.fau.edu/departments/finance/banking-initiative/), based on Dr. Rebel Cole's analysis of Bank Call Report data for Q3 2025 from the U.S. Federal Financial Institutions Examination Council.