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To Fully Net or Not to Net: Adverse Effects of Partial Multilateral Netting

Author

Listed:
  • Hamed Amini

    (Department of Mathematics, University of Miami, Coral Gables, Florida 33146)

  • Damir Filipović

    (Ecole Polytechnique Fédérale de Lausanne; and Swiss Finance Institute, 1015 Lausanne, Switzerland)

  • Andreea Minca

    (School of Operations Research and Information Engineering, Cornell University, Ithaca, New York 14850)

Abstract

We show that partial versus full multilateral netting of interbank liabilities increases bank shortfall and reduces clearing asset price and aggregate bank surplus. We also show that partial multilateral netting can be worse than no netting at all.

Suggested Citation

  • Hamed Amini & Damir Filipović & Andreea Minca, 2016. "To Fully Net or Not to Net: Adverse Effects of Partial Multilateral Netting," Operations Research, INFORMS, vol. 64(5), pages 1135-1142, October.
    • Handle: RePEc:inm:oropre:v:64:y:2016:i:5:p:1135-1142
    DOI: 10.1287/opre.2015.1414
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Tang, Qihe & Tong, Zhiwei & Xun, Li, 2022. "Insurance risk analysis of financial networks vulnerable to a shock," European Journal of Operational Research, Elsevier, vol. 301(2), pages 756-771.
    2. Giuseppe C. Calafiore & Giulia Fracastoro & Anton V. Proskurnikov, 2022. "Clearing Payments in Dynamic Financial Networks," Papers 2201.12898, arXiv.org, revised May 2022.
    3. P'al Andr'as Papp & Roger Wattenhofer, 2021. "Debt Swapping for Risk Mitigation in Financial Networks," Papers 2107.05359, arXiv.org.
    4. Berndsen, Ron, 2020. "Five Fundamental Questions on Central Counterparties," Other publications TiSEM 1f3bd844-92ab-4104-8f57-9, Tilburg University, School of Economics and Management.
    5. Injun Hwang & Baeho Kim, 2022. "A systemic change of measure from central clearing," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(9), pages 1738-1754, September.
    6. Giuseppe Calafiore & Giulia Fracastoro & Anton Proskurnikov, 2024. "Default Resilience and Worst-Case Effects in Financial Networks," Papers 2403.10631, arXiv.org.
    7. Lim, Hanah, 2022. "Benefit attribution in financial systems with bilateral netting," Finance Research Letters, Elsevier, vol. 45(C).
    8. Giuseppe Calafiore & Giulia Fracastoro & Anton V. Proskurnikov, 2021. "Optimal Clearing Payments in a Financial Contagion Model," Papers 2103.10872, arXiv.org, revised Feb 2024.
    9. Luitgard Anna Maria Veraart, 2022. "When does portfolio compression reduce systemic risk?," Mathematical Finance, Wiley Blackwell, vol. 32(3), pages 727-778, July.
    10. Csóka, Péter & Herings, P. Jean-Jacques, 2025. "Two axiomatizations of the pairwise netting proportional rule in financial networks," European Journal of Operational Research, Elsevier, vol. 325(3), pages 553-567.
    11. Amini, Hamed & Feinstein, Zachary, 2023. "Optimal network compression," European Journal of Operational Research, Elsevier, vol. 306(3), pages 1439-1455.
    12. Marco Bardoscia & Fabio Caccioli & Haotian Gao, 2022. "Efficiency of central clearing under liquidity stress," Bank of England working papers 1002, Bank of England.
    13. Ahn, Dohyun & Kim, Kyoung-Kuk & Kwon, Eunji, 2023. "Multivariate stress scenario selection in interbank networks," Journal of Economic Dynamics and Control, Elsevier, vol. 154(C).

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