Agent-Based Risk Assessment Model of the European Banking Network

Tomas Klinger and Petr Teply

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: The 2007-2009 financial crisis highlighted the vulnerabilities in the global banking system and shifted research focus to the study of systemic risk. Network theory and agent-based simulation have been used to investigate complex banking systems that would be difficult to model analytically. Nevertheless, the difficulty of obtaining accurate data, as well as the computational complexity of running such models, are limiting their ability to capture the complexities that are emerging in real-world scenarios. In this paper, we use an agent-based simulation combined with innovative calibration techniques in order to model the European banking system as accurately as possible. We extend the existing network approach by adding the ability to model banks of different sizes as well as the detailed connections of individual banks across countries. Our model consists of 286 banks in 9 European countries. We believe that the experiments in this model provide valuable insights into systemic risk within the European banking system as well as useful guidelines for creating new policies.

Keywords: agent-based models; bank, contagion; network models; systemic risk (search for similar items in EconPapers)
JEL-codes: C63 D85 G21 (search for similar items in EconPapers)
Date: 2017-08
New Economics Papers: this item is included in nep-cmp, nep-eec and nep-hme
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