On the resolution of cross-liabilities

In a variety of systems, in particular financial system, entities hold liabilities on each other. The reimbursement abilities are intertwined, thereby potentially generating coordination failures and cascades defaults calling for orderly resolution. With single indebted firm, bankruptcy law organizes such an cross-liabilities, resolution rule should be defined at the system level to account all those affected, directly or indirectly. This paper investigates rules assuming their primary goal is avoid creditors external say banks’ customers’ deposits. I define characterize constrained-proportional building two approaches: minimization inequality measure reimbursements (made received) axiomatization through desirable properties.