Basel III has aided system stability, interbank models suggest

The Bank for International Settlements, Basel
The Bank for International Settlements. Photo: Ulrich Roth
Ulrich Roth

Agent-based modelling of the interbank lending market shows post-2008 reforms should work as intended to reduce contagion in a future crisis. While the onset of a crisis may be faster, the forthcoming research finds it is less likely to happen, and would wipe out less of the banking system's equity.

Using annual interbank exposure for the years 2004–13, the researchers ran 1,000 simulations for each year. In each simulation, randomly selected banks in the system received shocks of a pre-specifie