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

  • Tomáš Klinger
  • Petr Teplý

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.

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Article provided by University of Economics, Prague in its journal Prague Economic Papers.

Volume (Year): 2014 (2014)
Issue (Month): 1 ()
Pages: 24-41

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Handle: RePEc:prg:jnlpep:v:2014:y:2014:i:1:id:471:p:24-41
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  1. Michael Boss & Helmut Elsinger & Martin Summer & Stefan Thurner, 2004. "Network topology of the interbank market," Quantitative Finance, Taylor & Francis Journals, vol. 4(6), pages 677-684.
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  9. Lelyveld, Iman van & Liedorp, Franka, 2006. "Interbank Contagion in the Dutch Banking Sector: A Sensitivity Analysis," MPRA Paper 806, University Library of Munich, Germany.
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