IDEAS home Printed from https://ideas.repec.org/p/zbw/bamber/164.html
   My bibliography  Save this paper

Macroprudential capital buffers in heterogeneous banking networks: Insights from an ABM with liquidity crises

Author

Listed:
  • Gurgone, Andrea
  • Iori, Giulia

Abstract

To date, macroprudential policy inspired by the Basel III package is applied irrespective of the network characteristics of the banking system. We study how the implementation of macroprudential policy in the form of additional capital requirements conditional to systemic-risk measures of banks should regard the degree of heterogeneity of financial networks. We adopt a multi-agent approach describing an artificial economy with households, firms, and banks in which occasional liquidity crises emerge. We shape the configuration of the financial network to generate two polar worlds: one is characterized by few banks who lend most of the credit to the real sector while borrowing interbank liquidity. The other shows a higher degree of homogeneity. We focus on a capital buffer for SII and two buffers built on measures of systemic impact and vulnerability. The research suggests that the criteria for the identification of systemic-important banks may change with the network heterogeneity. Thus, capital buffers should be calibrated on the heterogeneity of the financial networks to stabilize the system, otherwise they may be ineffective. Therefore, we argue that prudential regulation should account for the characteristics of the banking networks and tune macroprudential tools accordingly.

Suggested Citation

  • Gurgone, Andrea & Iori, Giulia, 2020. "Macroprudential capital buffers in heterogeneous banking networks: Insights from an ABM with liquidity crises," BERG Working Paper Series 164, Bamberg University, Bamberg Economic Research Group.
  • Handle: RePEc:zbw:bamber:164
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/226393/1/1738428699.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Acharya, Viral V., 2009. "A theory of systemic risk and design of prudential bank regulation," Journal of Financial Stability, Elsevier, vol. 5(3), pages 224-255, September.
    2. Gurgone, Andrea & Iori, Giulia & Jafarey, Saqib, 2018. "The effects of interbank networks on efficiency and stability in a macroeconomic agent-based model," Journal of Economic Dynamics and Control, Elsevier, vol. 91(C), pages 257-288.
    3. Armantier, Olivier & Ghysels, Eric & Sarkar, Asani & Shrader, Jeffrey, 2015. "Discount window stigma during the 2007–2008 financial crisis," Journal of Financial Economics, Elsevier, vol. 118(2), pages 317-335.
    4. Viral V. Acharya & Tanju Yorulmazer, 2008. "Cash-in-the-Market Pricing and Optimal Resolution of Bank Failures," The Review of Financial Studies, Society for Financial Studies, vol. 21(6), pages 2705-2742, November.
    5. Iori, Giulia & Renò, Roberto & De Masi, Giulia & Caldarelli, Guido, 2007. "Trading strategies in the Italian interbank market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 376(C), pages 467-479.
    6. Battiston Stefano & Caldarelli Guido & D’Errico Marco & Gurciullo Stefano, 2016. "Leveraging the network: A stress-test framework based on DebtRank," Statistics & Risk Modeling, De Gruyter, vol. 33(3-4), pages 117-138, December.
    7. Poledna, Sebastian & Bochmann, Olaf & Thurner, Stefan, 2017. "Basel III capital surcharges for G-SIBs are far less effective in managing systemic risk in comparison to network-based, systemic risk-dependent financial transaction taxes," Journal of Economic Dynamics and Control, Elsevier, vol. 77(C), pages 230-246.
    8. Moore, Kyle & Zhou, Chen, 2013. ""Too big to fail" or "Too non-traditional to fail"?: The determinants of banks' systemic importance," MPRA Paper 45589, University Library of Munich, Germany.
    9. Assenza, Tiziana & Delli Gatti, Domenico & Grazzini, Jakob, 2015. "Emergent dynamics of a macroeconomic agent based model with capital and credit," Journal of Economic Dynamics and Control, Elsevier, vol. 50(C), pages 5-28.
    10. Marco Bardoscia & Stefano Battiston & Fabio Caccioli & Guido Caldarelli, 2015. "DebtRank: A Microscopic Foundation for Shock Propagation," PLOS ONE, Public Library of Science, vol. 10(6), pages 1-13, June.
    11. Wagner, Wolf, 2008. "The homogenization of the financial system and financial crises," Journal of Financial Intermediation, Elsevier, vol. 17(3), pages 330-356, July.
    12. Iori, Giulia & Jafarey, Saqib & Padilla, Francisco G., 2006. "Systemic risk on the interbank market," Journal of Economic Behavior & Organization, Elsevier, vol. 61(4), pages 525-542, December.
    13. Stigler, George J., 1983. "The Organization of Industry," University of Chicago Press Economics Books, University of Chicago Press, number 9780226774329, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Savin, Ivan & Mundt, Philipp, 2022. "Drivers of productivity change in global value chains: Reallocation vs. innovation," Economics Letters, Elsevier, vol. 220(C).
    2. Sahm, Marco, 2022. "Optimal accuracy of unbiased Tullock contests with two heterogeneous players," BERG Working Paper Series 175, Bamberg University, Bamberg Economic Research Group.
    3. Carro, Adrian, 2023. "Taming the housing roller coaster: The impact of macroprudential policy on the house price cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 156(C).
    4. Mundt, Philipp & Cantner, Uwe & Inoue, Hiroyasu & Savin, Ivan & Vannuccini, Simone, 2021. "Market selection in global value chains," BERG Working Paper Series 170, Bamberg University, Bamberg Economic Research Group.
    5. Schulz, Jan & Mayerhoffer, Daniel M., 2021. "A network approach to consumption," BERG Working Paper Series 173, Bamberg University, Bamberg Economic Research Group.
    6. Schmitt, Sefanie Y. & Bruckner, Dominik, 2022. "Unaware consumers and disclosure of deficiencies," BERG Working Paper Series 178, Bamberg University, Bamberg Economic Research Group.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Morteza Alaeddini & Philippe Madiès & Paul J. Reaidy & Julie Dugdale, 2023. "Interbank money market concerns and actors’ strategies—A systematic review of 21st century literature," Journal of Economic Surveys, Wiley Blackwell, vol. 37(2), pages 573-654, April.
    2. 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).
    3. 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.
    4. Valentina Macchiati & Giuseppe Brandi & Tiziana Di Matteo & Daniela Paolotti & Guido Caldarelli & Giulio Cimini, 2022. "Systemic liquidity contagion in the European interbank market," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 17(2), pages 443-474, April.
    5. VanHoose, David, 2011. "Systemic Risk and Macroprudential Bank Regulation: A Critical Appraisal," Journal of Financial Transformation, Capco Institute, vol. 33, pages 45-60.
    6. Mario Eboli & Bulent Ozel & Andrea Teglio & Andrea Toto, 2023. "Connectivity, centralisation and ‘robustness-yet-fragility’ of interbank networks," Annals of Finance, Springer, vol. 19(2), pages 169-200, June.
    7. Teteryatnikova, Mariya, 2014. "Systemic risk in banking networks: Advantages of “tiered” banking systems," Journal of Economic Dynamics and Control, Elsevier, vol. 47(C), pages 186-210.
    8. Daniel Grigat & Fabio Caccioli, 2017. "Reverse stress testing interbank networks," Papers 1702.08744, arXiv.org, revised Mar 2017.
    9. Cañón, Carlos & Margaretic, Paula, 2014. "Correlated bank runs, interbank markets and reserve requirements," Journal of Banking & Finance, Elsevier, vol. 49(C), pages 515-533.
    10. Lamperti, Francesco & Bosetti, Valentina & Roventini, Andrea & Tavoni, Massimo & Treibich, Tania, 2021. "Three green financial policies to address climate risks," Journal of Financial Stability, Elsevier, vol. 54(C).
    11. Viral V. Acharya & Ouarda Merrouche, 2013. "Precautionary Hoarding of Liquidity and Interbank Markets: Evidence from the Subprime Crisis," Review of Finance, European Finance Association, vol. 17(1), pages 107-160.
    12. Marco Bardoscia & Fabio Caccioli & Juan Ignacio Perotti & Gianna Vivaldo & Guido Caldarelli, 2016. "Distress Propagation in Complex Networks: The Case of Non-Linear DebtRank," PLOS ONE, Public Library of Science, vol. 11(10), pages 1-12, October.
    13. Addi, Abdelhamid & Bouoiyour, Jamal, 2023. "Interconnectedness and extreme risk: Evidence from dual banking systems," Economic Modelling, Elsevier, vol. 120(C).
    14. Viral V. Acharya & Hamid Mehran & Anjan V. Thakor, 2016. "Caught between Scylla and Charybdis? Regulating Bank Leverage When There Is Rent Seeking and Risk Shifting," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 5(1), pages 36-75.
    15. Cao, Jin, 2010. "Illiquidity, insolvency, and banking regulation," Discussion Papers in Economics 11370, University of Munich, Department of Economics.
    16. Fabio Caccioli & Paolo Barucca & Teruyoshi Kobayashi, 2018. "Network models of financial systemic risk: a review," Journal of Computational Social Science, Springer, vol. 1(1), pages 81-114, January.
    17. Roncoroni, Alan & Battiston, Stefano & D’Errico, Marco & Hałaj, Grzegorz & Kok, Christoffer, 2021. "Interconnected banks and systemically important exposures," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).
    18. Poledna, Sebastian & Martínez-Jaramillo, Serafín & Caccioli, Fabio & Thurner, Stefan, 2021. "Quantification of systemic risk from overlapping portfolios in the financial system," Journal of Financial Stability, Elsevier, vol. 52(C).
    19. P. Tasca & S. Battiston, 2016. "Market procyclicality and systemic risk," Quantitative Finance, Taylor & Francis Journals, vol. 16(8), pages 1219-1235, August.
    20. Michel Alexandre & Gilberto Tadeu Lima & Luca Riccetti & Alberto Russo, 2023. "The financial network channel of monetary policy transmission: an agent-based model," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 18(3), pages 533-571, July.

    More about this item

    Keywords

    agent-based model; capital requirements; capital buffers; financial networks; macroprudential policy; systemic-risk;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:bamber:164. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/bebamde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.