A simple model of bank bankruptcies
AbstractInterbank deposits (loans and credits) are quite common in banking system all over the world. Such interbank co-operation is profitable for banks but it can also lead to collective financial failures. In this paper, we introduce a new model of directed percolation as a simple representation for contagion process and mass bankruptcies in banking systems. Directed connections that are randomly distributed between junctions of bank lattice simulate flows of money in our model. Critical values of a mean density of interbank connections as well as static and dynamic scaling laws for the statistics of avalanche bankruptcies are found. Results of computer simulations for the universal profile of bankruptcies spreading are in a qualitative agreement with the third wave of bank suspensions during The Great Depression in USA.
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Bibliographic InfoArticle provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.
Volume (Year): 299 (2001)
Issue (Month): 1 ()
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Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/
Random directed percolation; Interbank deposits; Mass bankruptcies;
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