Study suggests banks could learn from monkeys to avoid collapse

Feb 12, 2014 by Pat Bailey
Rhesus macaque

(Phys.org) —All jokes about monkey business aside, primate social networks provide valuable lessons that could help predict and prevent catastrophes like the global financial crisis of 2008, report researchers at the University of California, Davis.

The behaviors of captive and the both comprise complex networks. In this study, the researchers propose that crises are sometimes caused by breakdowns in these internal networks rather than by disabling external forces. Catastrophic collapses could be avoided by monitoring changes in these key internal networks, they suggest.

The researchers report their findings online in the January issue of the International Journal of Forecasting.

"Admittedly, comparing monkeys to a financial system is unconventional, however, we believe the comparison is compelling," said Fushing Hsieh, a professor of statistics and the study's lead author.

"We argue that it's possible to detect when a crisis is likely to set in—whether in a primate social group or an industry like banking—by modeling the evolution of the breakdowns across the system's networks," said co-author Óscar Jordà, a UC Davis economics professor and research adviser to the Federal Reserve Bank of San Francisco.

Hsieh and Jordà teamed up with UC Davis Professor Brenda McCowan and project scientist Brianne Beisner, both of the UC Davis School of Veterinary Medicine and California National Primate Research Center at UC Davis, to compare the two network systems.

The network models, developed from data collected on the large breeding societies of rhesus macaques housed outdoors at the primate center, are intended to help understand and subsequently prevent societal collapse in these natural monkey systems. The models were then applied, in principle, to the banking system.

The researchers first examined the power structure and significant points, or nodes, that comprise the networks in the monkey social group and applied them to comparable points and networks in the banking industry.

For example, the networks in a community of captive monkeys are based on behaviors such as mutual grooming, fighting, assisting in fights and displaying status signals such as teeth-baring. In the banking industry, the primary activities revolve around interbank lending, loan syndication, bond-issuing services and insurance.

The researchers determined that the most significant activities within each system are those that influence other relationships. In monkey society, for instance, teeth-baring and other status behaviors that signal who is the boss of whom comprise the fundamental, or keystone, network because they govern close, long-term relationships and aggression between individual monkeys.

"There may not be much teeth-baring in the banking industry, however we did determine that interbank lending would be the network in that system that is of comparable importance to subordination signaling in a monkey colony," McCowan said.

These keystone networks are critically important because they significantly influence the stability of other relationships or networks within each respective system, she said.

The researchers propose that by examining changes in the connectivity patterns within the keystone network as well as the dependence patterns between each keystone and its subsidiary networks, it's possible to measure growing disturbances within the system, detect a mounting problem and intervene before it reaches a catastrophic tipping point.

Explore further: Network theory to strengthen the banking system

More information: Computing systemic risk using multiple behavioral and keystone networks: The emergence of a crisis in primate societies and banks, International Journal of Forecasting. The paper is online here: www.sciencedirect.com/science/… ii/S0169207013001465

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BSD
5 / 5 (1) Feb 12, 2014
How ironic, I thought financial institutions and corporations were already run by monkeys, hence the 2008 GFC, the 1987 crash and the 1929 crash.

This monkey business and the consequences that followed, were no joke.
kochevnik
not rated yet Feb 12, 2014
Academics don't understand the institutional, corporate and government circle jerk run on the principle of fraud. Investors in Madoff knew he was defrauding, but thought they were somehow magically protected from the future shitstorm. Many people are reluctant to report fraud because they know they participated in it, yet were somehow smarter than the losers that followed them. Ponzi schemes hook the buyer into being a fraudster as well. Banks are institutions based upon fraud and sell only one product: debt. The only fix is an amputation and a hard currency like gold and bitcoin
ryggesogn2
1 / 5 (2) Feb 12, 2014
Monkeys use fiat currency?

Until banks are not under the control of govts that print the money, they will always fail.
BSD
5 / 5 (1) Feb 12, 2014
What does MBA stand for. Is it Monkey Business Administrator?

Or is it Master of Bullshit Artistry?

Either way, banks headed by these people are not to be trusted. The GFC proved that, suit wearing criminals getting away with murder. It was the lack of regulation that allowed the banks to run amok in the first place.
barakn
1 / 5 (1) Feb 12, 2014
Until banks are not under the control of govts that print the money, they will always fail.
Once again we see soggyring2's ignorance of history rearing its ugly head. Banks used to print their own money, and they failed aplenty.
ryggesogn2
1 / 5 (2) Feb 12, 2014
It was the lack of regulation that allowed the banks to run amok in the first place.

No, it was not.
Banks used to print their own money, and they failed aplenty.

Govt printing money and distributing it through banks is better?
I don't see any difference.
bowl weevils
not rated yet Feb 12, 2014
I'm all for animal models. But 2008 was far from the first banking crisis. If banks can't learn from the past 1500 years of financial crises, from the disappearing precious metal supply and debasing of coinage that followed the end of the Western Roman Empire to the mass inflation of the 16th century when Spain's mines in South America flooded Europe with precious metals, to the Tulip Mania, the South Sea Bubble, the cyclical crises of the 19th and 20th centuries, why is there any reason to think they're going to read monkey research as a guide?

There are hundreds of books and thousands of research articles more on point than this, as well as hundreds of years of actual financial market activity to learn from. Go read about Long-Term Capital Management, not about monkeys. Nobel Prize winning economists screwing up is far more instructive than anything here.

This story is more about academics and science journalists looking to grab attention than about banking or monkeys.
alfie_null
not rated yet Feb 13, 2014
Monkeys use fiat currency?

Until banks are not under the control of govts that print the money, they will always fail.

Imputing banks should operate free of government oversight? Like, no FDIC, etc.? The vast majority of bank account holders would disagree with you. You either don't understand or don't care why this is the case.
ryggesogn2
1 / 5 (1) Feb 14, 2014
You either don't understand or don't care why this is the case.

I understand quite well.
FDIC allows plundered tax wealth to be used to socialize risk and to enable govt to use banks for social engineering, like the Community Reinvestment Act (CRA).
The CRA is used to punish banks who won't make bad loans to people who can't pay which lead to securitized mortgages and the recently collapsed housing bubble.
Nestle
not rated yet Feb 15, 2014
This monkey business and the consequences that followed .. I'm all for animal models.
This article just says, we should learn from monkeys how NOT to do the business. He doesn't urge to use the monkeys as a positive example.
BSD
5 / 5 (2) Feb 16, 2014
I can only surmise that ryggesogn2 is either a troll. And/Or, he (it) is a wealthy elite who obviously supports like minded wealthy elite individuals. Throw in religious fundamentalism and political paranoia and that is pretty much it.

If rygg is not a wealthy elite, I don't understand why anyone would be right wing like the Koch Brothers. I can only put that down to his (it's) conservative christian outlook, which doesn't make sense either.
ryggesogn2
1 / 5 (1) Feb 16, 2014
BSD, why don't you defend your socialism instead of personal attacks?
I note that so many who are socialists here attack people like me instead of defending their socialism?
I know socialism is not defensible, but you can at least make an attempt.
BSD
5 / 5 (1) Feb 16, 2014
I don't need to defend socialism. You regard my comments as a personal attack, rygg, why?
ryggesogn2
1 / 5 (1) Feb 16, 2014
I don't need to defend socialism. You regard my comments as a personal attack, rygg, why?

You discussed me and not the issue.
I take your comments about my motives and who I am as confirmation that you can't support your position.
don't need to defend socialism

I know, it's indefensible.
zaxxon451
not rated yet Feb 17, 2014
Forget monkeys. Restore Glass-Steagall.

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