Collateralized Networks

• 成果类型: Article
• 署名作者: Ghamami, Samim; Glasserman, Paul; Young, H. Peyton
• 署名单位: University of California System; University of California Berkeley; New York University; Columbia University; University of London; London School Economics & Political Science; University of Oxford
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2020.3938
• 发表日期: 2022
• 页码: 2202-2225
• 关键词: contagion; OTC markets; Financial regulation; network; fire sales; collateral; automatic stays for qualified financial contracts

摘要

This paper studies the spread of losses and defaults in financial networks with two interrelated features: collateral requirements and alternative contract termination rules. When collateral is committed to a firm's counterparties, a solvent firm may default if it lacks sufficient liquid assets to meet its payment obligations. Collateral requirements can, thus, increase defaults and payment shortfalls. Moreover, one firm may benefit from the failure of another if the failure frees collateral committed by the surviving firm, giving it additional resources to make other payments. Contract termination at default may also improve the ability of other firms to meet their obligations through access to collateral. As a consequence of these features, the timing of payments and collateral liquidation must be carefully specified to establish the existence of payments that clear the network. Using this framework, we show that dedicated collateral may lead to more defaults than pooled collateral, we study the consequences of illiquid collateral for the spread of losses through fire sales, we compare networks with and without selective contract termination, and we analyze the impact of alternative resolution and bankruptcy stay rules that limit the seizure of collateral at default. Under an upper bound on derivatives leverage, full termination reduces payment shortfalls compared with selective termination.