Prague Economic Papers 2014, 23(1):24-41 | DOI: 10.18267/j.pep.471

Systemic Risk of the Global Banking System - An Agent-Based Network Model Approach

Tomáš Klinger1, Petr Teplý2
1 Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Opletalova 26, 110 00 Prague 1 (tomas.klinger@seznam.cz).
2 Faculty of Finance and Accounting, University of Economics, Prague, nám. W. Churchilla 4, 130 67 Prague 3 (petr.teply@vse.cz).

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.

Keywords: agent-based modelling, banking regulation, Basel III, capital, interbank network, systemic risk
JEL classification: E61, G01, G21, G28

Published: January 1, 2014  Show citation

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Klinger, T., & Teplý, P. (2014). Systemic Risk of the Global Banking System - An Agent-Based Network Model Approach. Prague Economic Papers23(1), 24-41. doi: 10.18267/j.pep.471
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