A Multi-Agent Methodology to Assess the Effectiveness of Alternative Systemic Risk Adjusted Capital Requirements

Abstract

We propose a multi-agent approach to compare the eectiveness of macroprudential capital requirements, where banks are embedded in an articial macroeconomy. Capital requirements are derived from alternative systemic-risk metrics that reect both the vulnerability or impact of nancial institutions. 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 nd that macro-prudential capital requirements derived from vulnerability measures of systemic-risk can improve nancial stability without jeopardizing output and credit supply. Moreover, macroprudential regulation applied to systemic important banks might be counterproductive for systemic groups of banks.

Interbank money market concerns and actors’ strategies—A systematic review of 21st century literature

“…(2016) found that contagion effects are most significant if the originating defaulted bank is highly leveraged. Accordingly, Gurgone and Iori (2019) focused on macro‐prudential capital requirements, and by testing several simulation scenarios, they showed how capital requirements could mitigate systemic risk. In this regard, Gaffeo et al.…”

“…Similarly, Yao et al (2016) found that contagion effects are most significant if the originating defaulted bank is highly leveraged. Accordingly, Gurgone and Iori (2019) focused on macro-prudential capital requirements, and by testing several simulation scenarios, they showed how capital requirements could mitigate systemic risk. In this regard, Gaffeo et al (2019) and Leventides et al (2019), like other researchers, identified an inverse relationship between the capitalization level imposed on banks and financial contagion.…”

“…Negative BB: Leverage up to the regulatory minimum (Battiston et al, 2013;Choi, 2012;Fei et al, 2015;Gaffeo et al, 2019;Gurgone & Iori, 2019;Leventides et al, 2019;Memmel & Sachs, 2013;Nguyen, 2018;Souza et al, 2015;Wolski & van de Leur, 2016;Yao et al, 2016) Positive BB: Leverage up to the regulatory minimumLB: Keep less risky assets (Calimani et al, 2019) Liquidity requirement Negative BB and LB: Estimate the net cash flow; hold minimum liquid assets BB: Deleverage or sell nonliquid assets LB: Get liquidity back from more sources CB: Pays interest on banks' reserve (Aldasoro et al, 2017;Gaffeo & Molinari, 2015;Hałaj, 2018;Li & He, 2012) (Continues)…”

An Agent-Oriented, Blockchain-Based Design of the Interbank Money Market Trading System

“…An approach to reduce the complexity of a system with such specifications could be to use a self-organizing multi-agent system [20]. In recent years, much partial research has been conducted using agent-based simulation on various concerns of IMM, i.e., systemic risk [19,[21][22][23][24], stability [21,25], market structure [21,26], trust [27], and default [19,28]. To the best of our knowledge, except for a few studies on interbank payment and settlement systems [29][30][31], a serious complete work may rarely be found on designing an agent-based architecture that can cover all the IMM functions and help to make decisions.…”