Research on Loss Absorption of Financial Group

Abstract

The mechanism of fund transaction conducted between banks is comprised of a network based on multiple banks. The suspension of bank funding directly causes a loss of depositor settlement methods. This subject attracts much attention from the nation because of the possibility of an increase in the national burden if public funds are injected to banks in the event of a financial crisis. Although many researchers have attempted to understand the propagation mechanisms of the crises in Systemic risk, the mechanism is not yet clearly understood. This research proposes a new agent-based modeling method for systemic risk based on a model that uses simple balance sheets and regulations of the financial institution. The model considers liquidity effects on interbank networks and endogenous risks. Using this model, this research validates the effect of bankruptcy in the case of the structure of the financial group in regional banks. In Japan, cases of financial groups, which is a kind of merger, are increasing recently in regional banks in particular, and it is significant to clarify the effect of the resilience of bankruptcy. In this research, our aim is to evaluate the effect of loss-absorbing mechanism that can be taken when banks constituting the financial group falls into a crisis of bankruptcy. And we made it clear that the selection of the banks that make up the financial group has an impact on the loss propagation.