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Chain bankruptcy size in inter-bank networks: the effects of asset price volatility and the network structure

Author

Listed:
  • Ryo Hamawaki

    (The University of Tokyo)

  • Kiyoshi Izumi

    (The University of Tokyo)

  • Hiroki Sakaji

    (The University of Tokyo)

  • Takashi Shimada

    (The University of Tokyo)

  • Hiroyasu Matsushima

    (The University of Tokyo)

Abstract

One bankruptcy of a certain bank can make another bank go bankrupt. This phenomenon is called chain bankruptcy. Chain bankruptcy is a kind of “systemic risk,” a topic that has received a great deal of attention from researchers, recently. Here, we analyzed the effect of the asset price fluctuation and the inter-bank lending and borrowing network on chain bankruptcy by using an agent-based simulation. We found that: (1) as the rate of change in asset price grows, the total number of bankruptcies increases. On the other hand, when the rate of change in asset prices exceeds a certain value, the total number of bankruptcies became unvarying; (2) as the density of links increases, the total number of bankruptcies decreases, except when a certain situation occurs in core–periphery networks. These results suggest that factors causing bankruptcy are asset price fluctuations and the network structure of the inter-bank network.

Suggested Citation

  • Ryo Hamawaki & Kiyoshi Izumi & Hiroki Sakaji & Takashi Shimada & Hiroyasu Matsushima, 2019. "Chain bankruptcy size in inter-bank networks: the effects of asset price volatility and the network structure," Journal of Computational Social Science, Springer, vol. 2(1), pages 53-66, January.
    • Handle: RePEc:spr:jcsosc:v:2:y:2019:i:1:d:10.1007_s42001-019-00041-z
    DOI: 10.1007/s42001-019-00041-z
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