Bankruptcy Cascades in Interbank Markets.docVIP

BankruptcyCascadesinInterbankMarkets GabrieleTedeschi1*,AminMazloumian2,MauroGallegati1,DirkHelbing2 1DepartmentofEconomics,Universita′ PolitecnicadelleMarche,Ancona,Italy,2DepartmentofHumanitiesandSocialSciences,ETHZurich,Zurich,Switzerland Abstract We study a credit network and, in particular, an interbank system with an agent-based model. To understand the relationshipbetweenbusinesscyclesandcascadesofbankruptcies,wemodelathree-sectoreconomywithgoods,credit andinterbankmarket.Intheinterbankmarket,theparticipatingbankssharetheriskofbaddebits,whichmaypotentially spreadabank’sliquidityproblemsthroughthenetworkofbanks.Ouragent-basedmodelshedslightonthecorrelation between bankruptcy cascades and the endogenous economic cycle of booms and recessions. It also demonstrates the serioustrade-offbetween,ontheonehand,reducingrisksofindividualbanksbysharingthemand,ontheotherhand, creatingsystemicrisksthroughcredit-relatedinterlinkagesofbanks.Asaresultofourstudy,thedynamicsunderlyingthe meltdownoffinancialmarketsin2008becomesmuchbetterunderstandable. Citation: Tedeschi G, Mazloumian A, Gallegati M, Helbing D (2012) Bankruptcy Cascades in Interbank Markets. PLoS ONE 7(12): e52749. doi:10.1371/ journal.pone.0052749 Editor:Ce′sar A.Hidalgo,MIT,UnitedStatesofAmerica ReceivedSeptember17,2012;AcceptedNovember21,2012;PublishedDecember31,2012 Copyright: ? 2012 Tedeschi etal. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricteduse,distribution,andreproductioninanymedium,providedtheoriginalauthorandsourcearecredited. Funding:Theauthorshavenosupportorfundingtoreport. CompetingInterests:Theauthorshavedeclaredthatnocompetinginterestsexist. *E-mail:g.tedeschi@univpm.it Introduction leverage that have made the economy increasingly fragile and potentiallyunstable.Followingtheseverefinancialandeconomic crisis that started in 2007 in US, the phenomenon of growing financializationisincreasinglyundercriticaldiscussi