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A simple model of bank bankruptcies

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  • Aleksiejuk, Agata
  • Hołyst, Janusz A.

Abstract

Interbank 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.

Suggested Citation

  • Aleksiejuk, Agata & Hołyst, Janusz A., 2001. "A simple model of bank bankruptcies," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 299(1), pages 198-204.
  • Handle: RePEc:eee:phsmap:v:299:y:2001:i:1:p:198-204
    DOI: 10.1016/S0378-4371(01)00296-5
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    Citations

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    Cited by:

    1. Mizgier, Kamil J. & Wagner, Stephan M. & Holyst, Janusz A., 2012. "Modeling defaults of companies in multi-stage supply chain networks," International Journal of Production Economics, Elsevier, vol. 135(1), pages 14-23.
    2. Anna M. Chmiel & Julian Sienkiewicz & Krzysztof Suchecki & Janusz A. Holyst, 2006. "Networks of companies and branches in Poland," Papers physics/0611147, arXiv.org.
    3. Estrada, Fernando, 2011. "Theory of financial risk," MPRA Paper 29665, University Library of Munich, Germany.
    4. E. Samanidou & E. Zschischang & D. Stauffer & Thomas Lux, 2006. "Microscopic Models of Financial Markets," Working Papers wpn06-03, Warwick Business School, Finance Group.
    5. Estrada, Fernando, 2014. "Rescue costs and financial risk," MPRA Paper 59066, University Library of Munich, Germany.
    6. Estrada, Fernando, 2014. "Rescate y costos del riesgo financiero
      [Rescue costs and financial risk]
      ," MPRA Paper 58848, University Library of Munich, Germany.
    7. Estrada, Fernando, 2009. "Tamaño y Riesgo en los Mercados Financieros
      [Size and Risk in the Finanzal Markets]
      ," MPRA Paper 19267, University Library of Munich, Germany.
    8. Taleb, Nassim N. & Tapiero, Charles S., 2010. "Risk externalities and too big to fail," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(17), pages 3503-3507.

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