However, the domino model is fl awed. For a start, the domino model paints a picture of passive fi nancial institutions who stand by and do nothing as the sequence of defaults unfold. In practice, however, they will take actions in reaction to unfolding events, and in anticipation of impending defaults. Second, the domino model does not take suffi cient account of how prices and measured risks change. In the simplest scenario of the domino model, asset prices are fi xed at their book values, and balance sheets take a hit only with default. Such a.
