title: Bankruptcy cascades in interbank markets.
abstract: We study a credit network and, in particular, an interbank system with an agent-based model. To understand the relationship between business cycles and cascades of bankruptcies, we model a three-sector economy with goods, credit and interbank market. In the interbank market, the participating banks share the risk of bad debits, which may potentially spread a bank's liquidity problems through the network of banks. Our agent-based model sheds light on the correlation between bankruptcy cascades and the endogenous economic cycle of booms and recessions. It also demonstrates the serious trade-off between, on the one hand, reducing risks of individual banks by sharing them and, on the other hand, creating systemic risks through credit-related interlinkages of banks. As a result of our study, the dynamics underlying the meltdown of financial markets in 2008 becomes much better understandable.
authors.affiliation: Department of Economics, Universitá Politecnica delle Marche, Ancona, Italy. g.tedeschi@univpm.it
authors.forename: Gabriele
authors.initials: G
authors.lastname: Tedeschi
authors.forename: Amin
authors.initials: A
authors.lastname: Mazloumian
authors.forename: Mauro
authors.initials: M
authors.lastname: Gallegati
authors.forename: Dirk
authors.initials: D
authors.lastname: Helbing
mesh_terms: D000465:Algorithms; D016361:Bankruptcy; D030861:Capitalism; D003198:Computer Simulation; D003627:Data Interpretation, Statistical; D006801:Humans; D018803:Models, Economic; D020414:Risk Sharing, Financial