Interbank Contagion: An Agent-Based Model for Vietnam Banking System

摘要

Network connectivity and credit contagion have drawn a great concern after financial crises with collapses of too-big-to-fail institutions and their consequences. The matter in question here is the impact and mechanism of contagion, which means how collapses of one or several institutions can trigger subsequent failures and in turn affect the whole system. This article proposes an agent-based approach to construct an interactive inter-bank system simulating the decisions of 19 Vietnamese banks and their balance sheets. A stress-testing mechanism is also provided to test the effects of idiosyncratic and systemic shocks of different magnitudes on the system. Initial results suggest that while idiosyncratic shocks don't substantially damage the banking network, systemic impairment could devastate the system, particularly in case it stimulates contagion of bank defaults.