European Parliament Library

ABBA: An Agent-Based Model of the Banking System, Jorge Chan-Lau

A thorough analysis of risks in the banking system requires incorporating banks’ inherent heterogeneity and adaptive behavior in response to shocks and changes in business conditions and the regulatory environment. ABBA is an agent-based model for analyzing risks in the banking system in which banks’ business decisions drive the endogenous formation of interbank networks. ABBA allows for a rich menu of banks’ decisions, contingent on banks’ balance sheet and capital position, including dividend payment rules, credit expansion, and dynamic balance sheet adjustment via risk-weight optimization. The platform serves to illustrate the effect of changes on regulatory requirements on solvency, liquidity, and interconnectedness risk. It could also constitute a basic building block for further development of large, bottom-up agent-based macro-financial models
Table Of Contents
Cover -- Contents -- I. Introduction -- II. Related Literature -- III. ABBA: Conceptual Foundations -- IV. Banks' Behavioral Decisions and Interactions with Other Agents -- V. A Simulation Exercise: Capital and Liquidity Requirements, Interconnectedness, and Bank Failures -- VI. Conclusions -- References -- Figures -- 1.Savers' behavioral decisions -- 2. Loans payoffs -- 3. Bank's actions and interactions with other agents -- 4. Average reserve ratio for different regulatory requirements -- 5. Mean capital ratio for different regulatory requirements -- 6. Mean return on equity under different regulatory requirements, in percent -- 7. NetLogo implementation of ABBA showing interbank loans -- 8. In-degree and Out-degree dynamics for a representative bank -- 9. Percent of times out-degree of a bank exceeds one -- Tables -- 1. Credit and liquidity failures for different regulatory requirements, in percent -- 2. Banks' in-degree for different regulatory requirements, in percent -- 3. Banks' out-degree for different regulatory requirements, in percent
Literary Form
non fiction
Physical Description
1 online resource (34 pages)
Specific Material Designation
Form Of Item

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