SYSTEMIC RISK OF THE GLOBAL BANKING SYSTEM - AN AGENT-BASED NETWORK MODEL APPROACH

Authored by Tomas Klinger, Petr Teply

Date Published: 2014-03

Sponsors: Czech Science Foundation

Platforms: No platforms listed

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

Abstract

The global banking system proved significantly vulnerable to systemic risk during the 2007-2009 financial crisis. In this paper, we construct an agent-based network model of systemic risk to a banking system, and use it for stress-testing of several different regulatory measures. First, our simulations confirm that sufficient capital buffers in individual banks are crucial for protecting the stability of the whole system. Second, we show that the regulatory measures installed as preventive measures to ensure that the banks possess sufficient capital buffers have almost no positive effects on stability when the system is collapsing. Finally, we highlight various data deficiencies which prevent the researchers and regulators from fully understanding the complete range of systemic risk and make it difficult to devise effective and targeted regulatory measures at this time.

Tags

Agent-based modelling Banking regulation Systemic risk Basel III capital interbank network Contagion stability Interbank market Liquidity risk