How Large are Default Spillovers in the U.S. Financial System?

Fernando Duarte, Collin Jones and Francisco Ruela

No 20190626, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: When a financial firm defaults on its counterparties, the counterparties may in turn become unable to pay their own creditors, and so on. This domino effect can quickly propagate through the financial system, creating undesirable spillovers and unnecessary defaults. In this post, the authors use the framework discussed in the first post of this two-part series to answer the question: How vulnerable is the U.S. financial system to default spillovers?

Keywords: default; financial sector; spillovers; Networks; counterparty risks (search for similar items in EconPapers)
JEL-codes: G2 (search for similar items in EconPapers)
Date: 2019-06-26
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