Discussion Paper

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


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;

JEL Classification: G2;

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2019-06-26

Number: 20190626