A multi-agent methodology to assess the effectiveness of alternative systemic risk adjusted capital requirements
Giulia Iori () and
Working Papers from Department of Economics, City University London
We propose a multi-agent approach to compare the effectiveness of macro-prudential capital requirements, where banks are embedded in an artificial macroeconomy. Capital requirements are derived from systemic- risk metrics that reflect both the vulnerability or impact of financial in- stitutions. 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 find that macro- prudential capital requirements can mitigate systemic risk, but there is a trade-off between market- and balance-sheet-based policies in terms of banks’ losses and credit supply.
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Persistent link: https://EconPapers.repec.org/RePEc:cty:dpaper:19/05
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