On the resolution of cross-liabilities

Abstract: In a variety of situations, entities in a system, for example firms in the financial sector, hold liabilities on each other. The reimbursement abilities are intertwined, thereby potentially generating coordination failures and a cascade of defaults calling for interventions. Interventions can be discretionary or designed by rules such as bankruptcy laws. Bankruptcy laws, however, manage the default of a single firm towards its creditors, without considering all those that could be affected indirectly by the resolution. To account for these indirect effects, resolution rules should be defined at the system level. This paper investigates such rules, assuming that the primary goal of the resolution is to avoid defaults on external debts, say, banks' defaults on deposits. Focusing on the proportionality principle, it defines and characterizes the constrained-proportional rule, building on two approaches: the minimization of an inequality measure of the reimbursements (made and received) and the axiomatization through desirable properties.

Keywords: Cross-liabilities; Resolution; Bi-proportionality; Axiomatization; Entropy cross-liabilities; Entropy (search for similar items in EconPapers)
Date: 2021-02
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03151128v1
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://shs.hal.science/halshs-03151128v1/document (application/pdf)

Related works:
Working Paper: On the resolution of cross-liabilities (2024)
Working Paper: On the resolution of cross-liabilities (2024)
Working Paper: On the resolution of cross-liabilities (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:halshs-03151128

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().