Analysis of the Influences of Central Bank Financing on Operative Collapses of Financial Institutions Using Agent-Based Simulation
- 25 August 2016
- conference paper
- conference paper
- Published by Institute of Electrical and Electronics Engineers (IEEE) in 2016 IEEE 40th Annual Computer Software and Applications Conference (COMPSAC)
- Vol. 2, 95-104
- https://doi.org/10.1109/compsac.2016.63
Abstract
Studies on financial crisis have focused on "systemic risk", whereby the collapse of one or more financial institutions has a ripple effect on the financial system itself. To prevent the occurrence or spread of such risks, a variety of discussions and studies have examined the role of central banks. This study deals with a case where central banks play a critical backup role in interbank markets. To realize the study aims, the authors develop an agent-based simulation platform and analyze the influences of central bank financing on operative reaction collapses of financial institutions. The main results are as follows: First, their financing may prevent operative reaction collapses by easing cash-flow situations. Additionally, there exist other risks such as financial institutions becoming excessively dependent for funding on the central bank, and unhealthy institutions remaining alive when they deserve to fail.Keywords
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