Systemically important banks - emerging risk and policy responses: An agent-based investigation

Lilit Popoyan, Mauro Napoletano and Andrea Roventini

LEM Papers Series from Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy

Abstract: We develop a macroeconomic agent-based model to study the role of systemically important banks (SIBs) in financial stability and the effectiveness of capital surcharges on SIBs as a risk management tool. The model is populated by heterogeneous firms, consumers, and banks interacting locally in different markets. In particular, banks provide credit to firms according to Basel III macro-prudential frameworks and manage their liquidity in the interbank market. The Central Bank performs monetary policy according to different types of Taylor rules. Our model endogenously generates banks with different balance sheet sizes, making some systemically important. The additional capital surcharges for SIBs prove to have a marginal effect on preventing the crisis since it points mainly to the ''too-big-to-fail'' problem with minimal importance for ''too-interconnected-to-fail'', ''too-many-to-fail'' and other issues. Moreover, we found that additional capital surcharges on SIBs do not account for the type and management strategy of the bank, leading to the ''one-size-fits-all'' problem. Finally, we found that additional loss-absorbing capacity needs to be increased to ensure total coverage of losses for failed SIBs.

Keywords: Financial instability; monetary policy; macro-prudential policy; systemically important banks, additional loss-absorbing capacity, Basel III regulation; agent-based models. (search for similar items in EconPapers)
Date: 2023-07-28
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cmp, nep-fdg, nep-hme, nep-mon and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.lem.sssup.it/WPLem/files/2023-30.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ssa:lemwps:2023/30

Access Statistics for this paper

More papers in LEM Papers Series from Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy Contact information at EDIRC.
Bibliographic data for series maintained by ( this e-mail address is bad, please contact ).