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To Basel or not to Basel? Banking crises and contagion

Aristeidis Samitas (Department of Business Administration, University of the Aegean, Chios, Greece)
Stathis Polyzos (Department of Business Administration, University of the Aegean, Chios, Greece)

Journal of Financial Regulation and Compliance

ISSN: 1358-1988

Article publication date: 13 July 2015

2491

Abstract

Purpose

The purpose of this paper is to propose an object-oriented model of financial simulations which aims to test the applicability and suitability of the proposed measures of Basel III with respect to the prevention of banking crises.

Design/methodology/approach

The authors introduce an object-oriented model of financial simulations in the banking sector, namely, virtual banking (VBanking). The system is based on behavioural simulation of economic agents and allows for transactions between them, using various forms of financial assets. VBanking has been implemented as an automated stand-alone model, allowing for repetitive simulations under the same parameter sets, producing an efficient series of statistical data.

Findings

Interpretation of the resulting data suggests that some of the criticism against the proposed measures is justified, as neither economic crises nor contagion are diminished under Basel III. At the same time, the authors’ findings support that the stability goal is met, at least in part.

Research limitations/implications

The model encompasses a relatively small part of the banking sector, while the authors choose not to deal with the production part of the economy. However, these limitations do not hinder the validity and importance of the authors’ findings.

Originality/value

The originality of this article lies in the use of an object-oriented behavioural model and in the resulting model application that is based on it. This enables the authors to run a series of simulations with different parameters, the results of which the authors can then compare. The authors’ findings can contribute to the authorities’ efforts to ameliorate the policies of Basel III.

Keywords

Citation

Samitas, A. and Polyzos, S. (2015), "To Basel or not to Basel? Banking crises and contagion", Journal of Financial Regulation and Compliance, Vol. 23 No. 3, pp. 298-318. https://doi.org/10.1108/JFRC-11-2014-0045

Publisher

:

Emerald Group Publishing Limited

Copyright © 2015, Emerald Group Publishing Limited

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