Abstract
The default of one bank can cause other banks to default through two channels: financial contagion in the inter-bank liability network and fire sale in the asset selling market. When the defaulted bank cannot fully pay its debt, the loss is transmitted to other banks. When banks rush to sell the same asset simultaneously, they may fall into a Nash equilibrium in which banks compete for liquidity and sell their assets at an artificially low price. In this paper, a model that incorporates these two channels is developed and analyzed theoretically. An algorithm for finding the state in which both the inter-bank liability network and the market are in equilibrium is proposed and tested.
Original language | English (US) |
---|---|
DOIs | |
State | Published - 2014 |
Event | 2014 48th Annual Conference on Information Sciences and Systems, CISS 2014 - Princeton, NJ, United States Duration: Mar 19 2014 → Mar 21 2014 |
Other
Other | 2014 48th Annual Conference on Information Sciences and Systems, CISS 2014 |
---|---|
Country/Territory | United States |
City | Princeton, NJ |
Period | 3/19/14 → 3/21/14 |
All Science Journal Classification (ASJC) codes
- Information Systems