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

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  • Mitja Steinbacher

    (Katoliški inštitut)

  • Timotej Jagrič

    (Maribor University)

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.

Suggested Citation

  • Mitja Steinbacher & Timotej Jagrič, 2020. "Interbank rules during economic declines: Can banks safeguard capital base?," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 15(2), pages 471-499, April.
    • Handle: RePEc:spr:jeicoo:v:15:y:2020:i:2:d:10.1007_s11403-018-0228-5
    DOI: 10.1007/s11403-018-0228-5
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    More about this item

    Keywords

    Interbank credit; Interbank rules; Interbank network; Agent-based simulation; Consistency; Capital-base;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other

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