IDEAS home Printed from https://ideas.repec.org/p/hal/wpaper/hal-02502413.html
   My bibliography  Save this paper

Resolution rules in a system of financially linked firms

Author

Listed:
  • Gabrielle Demange

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

The reimbursement abilities of firms holding liabilities on each other are intertwined, potentially generating coordination failures and defaults through uncontrolled contagion. In stress episodes, these linkages thus call for an orderly resolution, as implemented by a regulatory authority assigning the amount each firm within the system reimburses to each other one. The paper studies such resolution by considering 'rules', assuming their primary goal is to avoid default on external debts, say, banks' defaults on deposits. The main objective is to investigate what proportionality means for a rule, taking into account various legal and informational constraints.

Suggested Citation

  • Gabrielle Demange, 2020. "Resolution rules in a system of financially linked firms," Working Papers hal-02502413, HAL.
    • Handle: RePEc:hal:wpaper:hal-02502413
    Note: View the original document on HAL open archive server: https://hal.science/hal-02502413v1
    as

    Download full text from publisher

    File URL: https://hal.science/hal-02502413v1/document
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Péter Csóka & P. Jean-Jacques Herings, 2021. "An Axiomatization of the Proportional Rule in Financial Networks," Management Science, INFORMS, vol. 67(5), pages 2799-2812, May.
    2. Frankel, David M. & Volij, Oscar, 2011. "Measuring school segregation," Journal of Economic Theory, Elsevier, vol. 146(1), pages 1-38, January.
    3. Michel L. Balinski & Gabrielle Demange, 1989. "Algorithm for Proportional Matrices in Reals and Integers," Post-Print halshs-00585327, HAL.
    4. Upper, Christian, 2011. "Simulation methods to assess the danger of contagion in interbank markets," Journal of Financial Stability, Elsevier, vol. 7(3), pages 111-125, August.
    5. Moulin, Hervé, 2016. "Entropy, desegregation, and proportional rationing," Journal of Economic Theory, Elsevier, vol. 162(C), pages 1-20.
    6. Gabrielle Demange & Michel L. Balinski, 1989. "An Axiomatic Approach to Proportionality between Matrices," Post-Print halshs-00670952, HAL.
    7. Mirjam Groote Schaarsberg & Hans Reijnierse & Peter Borm, 2018. "On solving mutual liability problems," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 87(3), pages 383-409, June.
    8. Thomson, William, 2003. "Axiomatic and game-theoretic analysis of bankruptcy and taxation problems: a survey," Mathematical Social Sciences, Elsevier, vol. 45(3), pages 249-297, July.
    9. Stutzer, Michael, 2018. "The bankruptcy problem in financial networks," Economics Letters, Elsevier, vol. 170(C), pages 31-34.
    10. M. L. Balinski & G. Demange, 1989. "An Axiomatic Approach to Proportionality Between Matrices," Mathematics of Operations Research, INFORMS, vol. 14(4), pages 700-719, November.
    11. Aumann, Robert J. & Maschler, Michael, 1985. "Game theoretic analysis of a bankruptcy problem from the Talmud," Journal of Economic Theory, Elsevier, vol. 36(2), pages 195-213, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gabrielle Demange, 2021. "On the resolution of cross-liabilities," Working Papers halshs-03151128, HAL.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gabrielle Demange, 2021. "On the resolution of cross-liabilities," PSE Working Papers halshs-03151128, HAL.
    2. Moulin, Herve, 2017. "Consistent bilateral assignment," Mathematical Social Sciences, Elsevier, vol. 90(C), pages 43-55.
    3. Martijn Ketelaars & Peter Borm & Marieke Quant, 2020. "Decentralization and mutual liability rules," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 92(3), pages 577-599, December.
    4. Péter Csóka & P. Jean-Jacques Herings, 2021. "An Axiomatization of the Proportional Rule in Financial Networks," Management Science, INFORMS, vol. 67(5), pages 2799-2812, May.
    5. Ketelaars, Martijn & Borm, Peter, 2021. "On the Unification of Centralized and Decentralized Clearing Mechanisms in Financial Networks," Other publications TiSEM 12e804bf-7091-4cf7-afd6-a, Tilburg University, School of Economics and Management.
    6. Ketelaars, Martijn & Borm, Peter & Quant, Marieke, 2019. "Decentralization and mutual liability rules," Other publications TiSEM fa745b4f-f959-41d0-8c9f-0, Tilburg University, School of Economics and Management.
    7. Moulin, Hervé, 2016. "Entropy, desegregation, and proportional rationing," Journal of Economic Theory, Elsevier, vol. 162(C), pages 1-20.
    8. Martijn W. Ketelaars & Peter Borm, 2024. "On the unification of centralized and decentralized clearing mechanisms in financial networks," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 99(3), pages 205-231, June.
    9. Calleja, Pedro & Llerena, Francesc, 2024. "Proportional clearing mechanisms in financial systems: An axiomatic approach," Journal of Mathematical Economics, Elsevier, vol. 111(C).
    10. Michel Balinski, 2007. "Equitable representation and recruitment," Annals of Operations Research, Springer, vol. 149(1), pages 27-36, February.
    11. Demange, Gabrielle, 2012. "On party-proportional representation under district distortions," Mathematical Social Sciences, Elsevier, vol. 63(2), pages 181-191.
    12. Mirjam Groote Schaarsberg & Hans Reijnierse & Peter Borm, 2018. "On solving mutual liability problems," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 87(3), pages 383-409, June.
    13. Oelbermann, Kai-Friederike, 2016. "Alternate Scaling algorithm for biproportional divisor methods," Mathematical Social Sciences, Elsevier, vol. 80(C), pages 25-32.
    14. Karol Flores-Szwagrzak & Jaume García-Segarra & Miguel Ginés-Vilar, 2020. "Priority and proportionality in bankruptcy," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 54(4), pages 559-579, April.
    15. Pedro Calleja & Francesc Llerena, 2023. "Proportional clearing mechanisms in financial systems: an axiomatic approach," UB School of Economics Working Papers 2023/442, University of Barcelona School of Economics.
    16. Ricca, Federica & Scozzari, Andrea & Simeone, Bruno, 2011. "The give-up problem for blocked regional lists with multi-winners," Mathematical Social Sciences, Elsevier, vol. 62(1), pages 14-24, July.
    17. Csóka, Péter, 2017. "Az arányos csődszabály karakterizációja körbetartozások esetén [The characterization of the proportional rule in the case of circular liabilities]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 930-942.
    18. Gaffke, Norbert & Pukelsheim, Friedrich, 2008. "Divisor methods for proportional representation systems: An optimization approach to vector and matrix apportionment problems," Mathematical Social Sciences, Elsevier, vol. 56(2), pages 166-184, September.
    19. Ketelaars, Martijn & Borm, Peter & Herings, P.J.J., 2023. "Duality in Financial Networks," Discussion Paper 2023-016, Tilburg University, Center for Economic Research.
    20. Erlanson, Albin & Szwagrzak, Karol, 2013. "Strategy-Proof Package Assignment," Working Papers 2013:43, Lund University, Department of Economics.

    More about this item

    Keywords

    bankruptcy; entropy; cross-liabilities; defaults; central counter-party;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-02502413. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.