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A multi-agent methodology to assess the effectiveness of alternative systemic risk adjusted capital requirements

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  • Iori, G.
  • Gurgone, A.

Abstract

We propose a multi-agent approach to compare the effectiveness of macro-prudential capital requirements, where banks are embedded in an artificial macroeconomy. Capital requirements are derived from systemic- risk metrics that reflect both the vulnerability or impact of financial in- stitutions. Our objective is to explore how systemic-risk measures could be translated in capital requirements and test them in a comprehensive framework. Based on our counterfactual scenarios, we find that macro- prudential capital requirements can mitigate systemic risk, but there is a trade-off between market- and balance-sheet-based policies in terms of banks’ losses and credit supply.

Suggested Citation

  • Iori, G. & Gurgone, A., 2019. "A multi-agent methodology to assess the effectiveness of alternative systemic risk adjusted capital requirements," Working Papers 19/05, Department of Economics, City University London.
    • Handle: RePEc:cty:dpaper:19/05
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    File URL: https://openaccess.city.ac.uk/id/eprint/21902/1/Dept_Econ_WP1905.pdf
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