Systemic Risk in Financial Systems: Properties of Equilibria

TL;DR

This paper revisits the Eisenberg and Noe model of systemic risk in financial networks, demonstrating that the uniqueness of the equilibrium solution does not require the previously assumed regularity condition.

Contribution

It proves that the regularity condition for uniqueness in the Eisenberg and Noe model is unnecessary, ensuring a unique solution always exists.

Findings

Unique solution always exists without regularity condition

Simplifies analysis of systemic risk models

Strengthens theoretical foundations of financial network models

Abstract

Eisenberg and Noe (2001) analyze systemic risk for financial institutions linked by a network of liabilities. They show that the solution to their model is unique when the financial system is satisfies a regularity condition involving risk orbits. We show that this condition is not needed: a unique solution always exists.