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To Basel or not to Basel? Banking crises and contagion

Author

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  • Aristeidis Samitas
  • Stathis Polyzos

Abstract

Purpose - – The purpose of this paper is to propose an object-oriented model of financial simulations which aims to test the applicability and suitability of the proposed measures of Basel III with respect to the prevention of banking crises. Design/methodology/approach - – The authors introduce an object-oriented model of financial simulations in the banking sector, namely, virtual banking (VBanking). The system is based on behavioural simulation of economic agents and allows for transactions between them, using various forms of financial assets. VBanking has been implemented as an automated stand-alone model, allowing for repetitive simulations under the same parameter sets, producing an efficient series of statistical data. Findings - – Interpretation of the resulting data suggests that some of the criticism against the proposed measures is justified, as neither economic crises nor contagion are diminished under Basel III. At the same time, the authors’ findings support that the stability goal is met, at least in part. Research limitations/implications - – The model encompasses a relatively small part of the banking sector, while the authors choose not to deal with the production part of the economy. However, these limitations do not hinder the validity and importance of the authors’ findings. Originality/value - – The originality of this article lies in the use of an object-oriented behavioural model and in the resulting model application that is based on it. This enables the authors to run a series of simulations with different parameters, the results of which the authors can then compare. The authors’ findings can contribute to the authorities’ efforts to ameliorate the policies of Basel III.

Suggested Citation

  • Aristeidis Samitas & Stathis Polyzos, 2015. "To Basel or not to Basel? Banking crises and contagion," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 23(3), pages 298-318, July.
  • Handle: RePEc:eme:jfrcpp:v:23:y:2015:i:3:p:298-318
    DOI: 10.1108/JFRC-11-2014-0045
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    Citations

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    Cited by:

    1. Shailesh Rastogi & Arpita Sharma & Geetanjali Pinto & Venkata Mrudula Bhimavarapu, 2022. "A literature review of risk, regulation, and profitability of banks using a scientometric study," Future Business Journal, Springer, vol. 8(1), pages 1-17, December.
    2. Apergis, Emmanuel & Apergis, Iraklis & Apergis, Nicholas, 2019. "A new macro stress testing approach for financial realignment in the Eurozone," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 61(C), pages 52-80.
    3. Polyzos, Stathis & Samitas, Aristeidis & Kampouris, Ilias, 2021. "Economic stimulus through bank regulation: Government responses to the COVID-19 crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    4. Samitas, Aristeidis & Polyzos, Stathis & Siriopoulos, Costas, 2018. "Brexit and financial stability: An agent-based simulation," Economic Modelling, Elsevier, vol. 69(C), pages 181-192.
    5. Adão, Luiz F.S. & Silveira, Douglas & Ely, Regis A. & Cajueiro, Daniel O., 2022. "The impacts of interest rates on banks’ loan portfolio risk-taking," Journal of Economic Dynamics and Control, Elsevier, vol. 144(C).
    6. Samitas, Aristeidis & Polyzos, Stathis, 2016. "Freeing Greece from capital controls: Were the restrictions enforced in time?," Research in International Business and Finance, Elsevier, vol. 37(C), pages 196-213.

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