Comparing network-based taxation schemes to reduce systemic risk in banking systems
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Perustieteiden korkeakoulu |
Master's thesis
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Authors
Date
2019-06-17
Department
Major/Subject
Complex Systems
Mcode
SCI3060
Degree programme
Master’s Programme in Life Science Technologies
Language
en
Pages
57
Series
Abstract
Difficulty in predicting financial crises may lead to attempts of getting ready to them instead. Authorities construct rules for financial institutions in order to secure the economies from catastrophic consequences of systemically important financial institutions defaults. In order to create proper stimuli for the economic agents to avoid deals exposing the entire financial system, the tax on the systemic risk was proposed. While systemic importance of financial institutions might be measured in different ways, different metrics (namely: degree centrality, SinkRank, acyclic DebtRank, cyclic DebtRank and 2-step DebtRank) are compared as candidates for the systemic risk tax basis. Economics, being in focus of complex systems disciplines, is very difficult to investigate due to the impossibility to set an experiment. In order to test a certain policy, one may use computer simulations. In this thesis, an agent-based model is used to investigate the simulated economy evolution under different credit taxation policies. For this special purpose, one more systemic risk metric was proposed (it is called 2-step DebtRank). In addition, an equity layer for the interbank obligations network was introduced in order to investigate interlayer interaction. As a result of the taxation schemes comparison, acyclic and cyclic DebtRanks demonstrated the best performance as systemic risk taxes; 2-step DebtRank appeared to perform closely to other two DebtRanks; SinkRank appeared to be inappropriate for this purpose. The introduction of the equity layer does not create many essentially new results, however, the interlayer antiphase oscillation of the systemic risk was observed.Description
Supervisor
Saramäki, JariThesis advisor
Saramäki, JariKeywords
agent-basent modelling, crises, interbank networks, banking risks, systemic risk, DebtRank