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A multi-agent methodology to assess the effectiveness of alternative systemic risk adjusted capital requirements

Iori, G. ORCID: 0000-0001-9443-9353 and Gurgone, A. (2019). A multi-agent methodology to assess the effectiveness of alternative systemic risk adjusted capital requirements (19/05). London, UK: Department of Economics, City, University of London.

Abstract

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.

Publication Type: Monograph (Discussion Paper)
Additional Information: Copyright 2019, the authors.
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
Departments: School of Arts & Social Sciences > Economics
School of Arts & Social Sciences > Economics > Discussion Paper Series
URI: http://openaccess.city.ac.uk/id/eprint/21902
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