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

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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?

Suggested Citation

  • Fernando M. Duarte & Collin Jones & Francisco Ruela, 2019. "How Large are Default Spillovers in the U.S. Financial System?," Liberty Street Economics 20190626, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:87341
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    File URL: https://libertystreeteconomics.newyorkfed.org/2019/06/how-large-are-default-spillovers-in-the-us-financial-system.html
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    More about this item

    Keywords

    default; financial sector; spillovers; Networks; counterparty risks;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services

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