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Defaulting firms and systemic risks in financial networks

Author

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  • Nicolas Houy

    (GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique)

  • Frédéric Jouneau

    (GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique)

Abstract

In this paper, we use the axioms introduced in Eisenberg and Noe (2001) and Rogers and Veraart (2013) and study their consequences in terms of optimal sets of defaulting firms. We show that, from this point of view, the Absolute Priority axiom is not independent. We also show that the optimal sets of defaulting firms characterized in Eisenberg and Noe (2001) are still optimal when the Limited Payment axiom, implicit in Eisenberg and Noe (2001), is further removed. However, some other optimal sets of defaulting firms appear in this case. Finally, with the help of counterexamples, we show that no further weakening in the set of axioms considered can lead to positive results.

Suggested Citation

  • Nicolas Houy & Frédéric Jouneau, 2016. "Defaulting firms and systemic risks in financial networks," Working Papers halshs-01267340, HAL.
    • Handle: RePEc:hal:wpaper:halshs-01267340
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01267340
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    References listed on IDEAS

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    1. Daron Acemoglu & Asuman Ozdaglar & Alireza Tahbaz-Salehi, 2015. "Systemic Risk and Stability in Financial Networks," American Economic Review, American Economic Association, vol. 105(2), pages 564-608, February.
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    More about this item

    Keywords

    Credit Risks; Systemic Risks; Clearing Systems; Financial System;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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