Interbank rules during economic declines: Can banks safeguard capital base?

Mitja Steinbacher () and Timotej Jagrič ()
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Timotej Jagrič: Maribor University

Journal of Economic Interaction and Coordination, 2020, vol. 15, issue 2, No 6, 499 pages

Abstract: Abstract This paper studies the role of interbank credit within an agent-based model of the financial sector. Our main contribution consists in a behavioral foundation of banks demand and supply in the interbank market. We connect 100 heterogeneous banks that adapt their liquidity positions in the presence of shocks from the real economy via interbank deposits and interbank loans by using a common set of interbank rules. The key element in the model is the introduction of a Fermi–Dirac $$\kappa $$κ as a proxy of banks’ consistency in their behavior in the interbank market. For different growth–volatility scenarios we analyze, how the consistency interplays with the value of capital-base in the banking system. Overall, this paper provides simulation-based arguments that the interbank credit can safeguard capital-base during economic declines and that the interbank credit might be an important stabilizing factor for the real-world banking systems.

Keywords: Interbank credit; Interbank rules; Interbank network; Agent-based simulation; Consistency; Capital-base (search for similar items in EconPapers)
JEL-codes: C63 E47 E59 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11403-018-0228-5

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