Exploring Agent-Based Methods for the Analysis of Payment Systems: A Crisis Model for StarLogo TNG

Authored by Luca Arciero, Claudia Biancotti, Leandro D'Aurizio, Claudio Impenna

Date Published: 2009-01

Sponsors: No sponsors listed

Platforms: StarLogo

Model Documentation: Other Narrative

Model Code URLs: Model code not found

Abstract

This paper presents an exploratory agent-based model of a real time gross settlement (RTGS) payment system. Banks are represented as agents who exchange payment requests, which are then settled according to a set of simple rules. The model features the main elements of a real-life system, including a central bank acting as liquidity provider, and a simplified money market. A simulation exercise using synthetic data of BI-REL (the Italian RTGS) predicts the macroscopic impact of a disruptive event on the flow of interbank payments. In our reduced-scale system, three hypothetical distinct phases emerge after the disruptive event: 1) a liquidity sink effect is generated and the participants' liquidity expectations turn out to be excessive; 2) an illusory thickening of the money market follows, along with increased payment delays; and, finally 3) defaulted obligations dramatically rise. The banks cannot staunch the losses accruing on defaults, even after they become fully aware of the critical event, and a scenario emerges in which it might be necessary for the central bank to step in as liquidity provider.

Tags

Agent-based modeling Crisis Simulation Liquidity Payment systems RTGS