The Research of Systemic Risk considering structure of Inter-bank transaction

Abstract

Systemic risk that propagates through financial systems causes insolvency or failure of particular financial institutions such as Bankruptcy of Lehman Brothers or European debt crisis. Although many researchers have challenged to find the propagation mechanism of the crisis in the inter-bank network, it is not clear completely yet. Namatame (2013) shows four fundamental models, Eisenberg-Noe model, GK model, NYYA model, and May model. We focus on May model which uses mean-field approximation methods of a network structure, and try to extend the model to Agent-based modelling with a realistic network structure.Considering liquidity risk and the inter-bank transaction structure of Japan, this paper also examines a possibility of an effect of a capital infusion. The purpose of this study is to find a suggestion to help systemic risk reduce by reviewing and simulating several cases of defaults in financial institutions.