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Le paradoxe du contrôle dans les systèmes bancaires : homogénéité des contraintes prudentielles, duration commune et corrélation des ajustements de bilan
[The Control Paradox in Banking Systems: Homogeneity of Prudential Constraints, Common Duration and Correlation of Balance-Sheet Adjustments]

Author

Listed:
  • Chevalier, Alexis

Abstract

Complex systems exhibit a counter-intuitive property: excessive control of ordinary disturbances and homogenisation of constraints tend to concentrate fragility and amplify extreme events. This paper applies this insight to banking systems. It argues that greater similarity in binding prudential constraints across banks, combined with similar duration gaps (Macaulay or effective), is associated with higher conditional correlation of balance-sheet adjustments under stress—particularly interest-rate shocks. The hypothesis is motivated by analogies from wildfire suppression and antibiotic resistance, by the 2008 Fortis resolution, and by the 2023 US regional banking stress (SVB, Signature, First Republic). The paper provides a micro-foundation using constrained optimisation (Lagrangian and Kuhn-Tucker conditions) that includes balance-sheet equilibrium, prudential constraints and a duration-gap condition. When constraints and duration exposures are common across banks, the bordered Hessians become similar, producing correlated reactions to a common shock. An index of systemic correlation is proposed. The analysis then contrasts this regime with one in which banks can choose their own coverage ratios, issue distinct deposit instruments, and set their own interest rates, thereby constructing more independent duration profiles and reducing conditional correlation. The contribution is conceptual: it isolates the channel running from similarity of binding constraints and duration gaps to correlated balance-sheet reactions.

Suggested Citation

  • Chevalier, Alexis, 2026. "Le paradoxe du contrôle dans les systèmes bancaires : homogénéité des contraintes prudentielles, duration commune et corrélation des ajustements de bilan [The Control Paradox in Banking Systems: Homogeneity of Prudential Constraints, Common Durati," MPRA Paper 130482, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:130482
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    File URL: https://mpra.ub.uni-muenchen.de/130482/1/MPRA_paper_130482.pdf
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    References listed on IDEAS

    as
    1. Prasanna Gai & Sujit Kapadia, 2010. "Contagion in financial networks," Bank of England Staff Working Paper series 383, Bank of England.
    2. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
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    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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