To Basel or not to Basel? Banking crises and contagion

Aristeidis Samitas · Efstathios Polyzos

20 citations0/0 files storedJournal of Financial Regulation and Compliance

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Banking stability, regulation, efficiency Global Financial Crisis and Policies Global Financial Regulation and Crises

Abstract

Purpose – The purpose of this paper is to propose an object-oriented model of financial simulations which aims to test the applicability and suitability of the proposed measures of Basel III with respect to the prevention of banking crises. Design/methodology/approach – The authors introduce an object-oriented model of financial simulations in the banking sector, namely, virtual banking (VBanking). The system is based on behavioural simulation of economic agents and allows for transactions between them, using various forms of financial assets. VBanking has been implemented as an automated stand-alone model, allowing for repetitive simulations under the same parameter sets, producing an efficient series of statistical data. Findings – Interpretation of the resulting data suggests that some of the criticism against the proposed measures is justified, as neither economic crises nor contagion are diminished under Basel III. At the same time, the authors’ findings support that the stability goal is met, at least in part. Research limitations/implications – The model encompasses a relatively small part of the banking sector, while the authors choose not to deal with the production part of the economy. However, these limitations do not hinder the validity and importance of the authors’ findings. Originality/value – The originality of this article lies in the use of an object-oriented behavioural model and in the resulting model application that is based on it. This enables the authors to run a series of simulations with different parameters, the results of which the authors can then compare. The authors’ findings can contribute to the authorities’ efforts to ameliorate the policies of Basel III.

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References

1983Bank Runs, Deposit Insurance, and Liquidity 1999The Twin Crises: The Causes of Banking and Balance-of-Payments Problems 1997Happiness and Economic Performance 1998The Determinants of Banking Crises in Developing and Developed Countries 2008Systemic Banking Crises: A New Database 2010Determinants of Bank Profitability Before and During the Crisis: Evidence from Switzerland 2010Simulation methods to assess the danger of contagion in interbank markets 2008Comparing early warning systems for banking crises

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