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Defense strategies against cascading failures in networks: “Too-big-to-fail” and “too-small-to-fail”

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  • Kim, Minjung
  • Kim, Beom Jun

Abstract

“Too-big-to-fail (TBTF)” is a controversial approach to reducing the risk of cascading failures in the financial systems. In the TBTF defense strategy, most financial supports are provided to very big companies in order to avoid the complete breakdown of the entire system. We also consider “too-small-to-fail (TSTF)” as a comparative defense strategy, in which financial supports are more focused on small companies instead. We use two types of model network and a real network based on inter-industry Input-Output Table as underlying structures for cascading failures, and examine the validity of both defense strategies with two types of bailout policy, indirect (node capacity is increased) and direct (node load is decreased). We evaluate and compare the performances of TBTF and TSTF strategies in preventing cascading failures, and demonstrate that TSTF performs better when the node capacity is increased whereas TBTF works better when the node load is decreased.

Suggested Citation

  • Kim, Minjung & Kim, Beom Jun, 2022. "Defense strategies against cascading failures in networks: “Too-big-to-fail” and “too-small-to-fail”," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 586(C).
    • Handle: RePEc:eee:phsmap:v:586:y:2022:i:c:s0378437121007615
    DOI: 10.1016/j.physa.2021.126488
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    References listed on IDEAS

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