New international banking rules would not prevent another financial crisis

March 27, 2017

Current regulations aimed at reducing risk of crisis in the financial sector will not effectively reduce that risk, according to new research from the International Institute for Applied Systems Analysis (IIASA), published in the Journal of Economic Dynamics and Control. Introducing regulations that aim to increase the system network resilience would be more effective, the study shows.

The Basel III framework is a new set of international banking regulations that were proposed after the financial crisis in 2007-08, with the goal of reducing the risk of a future banking crises. The regulations, which are currently under intense discussion, would set higher requirements for bank capital and liquidity reserves and introduce capital surcharges for systemically important banks—those that are "too big to fail." The aim of the Basel III regulations is to reduce the risk of system-wide shocks in the . However, the study shows that the capital surcharges would have to be much higher that currently set in order to be effective, and that would lead to a severe loss of efficiency in the financial system.

"The recent financial crisis clearly indicates that a resilient banking sector in terms of underlying financial networks is a necessary condition for achieving sustained economic growth. It is therefore essential that Basel III, the upcoming international regulatory framework for banks, really address the problem of in the financial system," says IIASA researcher Sebastian Poledna, who led the study.

The research is based on a state-of-the-art agent-based model of a financial system and the real economy. In particular, the study focused on banks that are "too big to fail," known as globally systemically important banks (G-SIBs).

Using the model, the researchers ran a series of experiments simulating different types of regulations and their impacts on the financial system risk and resilience.

Replacing the currently proposed Basel III regulations with different regulations that aim to restructure financial networks would be much more effective in increasing resilience while avoiding the loss of efficiency in markets, according to the study. Such methods could include smart transaction taxes based on the level of systemic risk, which the researchers proposed in a recent study, in order to reshape the topology of financial networks.

"The new scheme Basel III claims to explicitly address systemic risk. We were surprised to find how little it really does so under realistic scenarios. The study highlights how important data-driven agent-based modeling has become as a tool to help us identify unintended consequences of regulations and propose more effective solutions," says IIASA researcher Stefan Thurner, who co-authored the study.

"The international banking system is complex and intricately connected," explains Poledna. "In order to make intelligent regulations, it's important to analyze how regulations will affect financial networks from a systemic perspective."

Explore further: Intelligent transaction tax could help reduce systemic risk in financial networks

More information: Sebastian Poledna et al, Basel III capital surcharges for G-SIBs are far less effective in managing systemic risk in comparison to network-based, systemic risk-dependent financial transaction taxes, Journal of Economic Dynamics and Control (2017). DOI: 10.1016/j.jedc.2017.02.004

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gkam
1 / 5 (5) Mar 27, 2017
How about the Death Penalty?

We could get rid of Trump and Pootie and the hedge fund crooks for all of us.
Captain Stumpy
3 / 5 (4) Mar 27, 2017
@STOLEN VALOR LIAR-kam
How about the Death Penalty?

We could get rid of Trump and Pootie and the hedge fund crooks for all of us.
1- this is a class E felony under United States Code Title 18, Section 871
https://www.law.c...t/18/871

https://www.gpo.g...c871.htm

2- this carries a sentence of less than five years but more than one year
https://www.law.c.../18/3559

3- this is a public access site - you posted publicly. and considering your oft repeated claims of "big brother" monitoring, it stands to reason this is intentional as an explicit threat to the POTUS

4- this is what you keep arguing about fighting against on this site: sniping, pseudonymous hate speech, fixations, immature non-science posts and comments that are OT and irrelevant

per your own request...
gkam
1 / 5 (4) Mar 27, 2017
Outgrow your fixation on me, Rumpy.

It says more about you than it does about me.

https://phys.org/...tes.html

"Bigger brains help social primates to make up after a fight, study says"
Captain Stumpy
3.7 / 5 (3) Mar 27, 2017
@STOLEN VALOR LIAR-kam
LOL
as for your above link/ref - you state
This throws a bright light on why some simple folk get fixations on others
the study states
Although group-level agonism increases with group size, dyadic agonism decreases. (Dyadic agonism identifies how much agonism each individual animal directs towards each other individuals within the group).

Ms Cowl added that this suggests that either individuals in larger groups can buffer aggression better or that only species with low levels of dyadic conflict can maintain large groups and stable social relationships
so, your comments here and there are both wrong & OT as you didn't read the study and are either illiterate or intentionally misrepresenting the topic

don't bother replying - i'll just abide by your request to clean up the site
gkam
1 / 5 (4) Mar 27, 2017
This thread regards the sins of the Banksters. It does not mention me.

Do you print out all that stuff you have on me and pin it to your bedroom wall, like in the movies?

I always wondered about your kind.
xponen
not rated yet Mar 27, 2017
The sin of 2008 depression not only fall on bankers but also on everyone else who did mortgage & loan. It was a huge dark cloud that people could sees from miles away but didn't react to it. The bankers assumes incorrectly that at least some people will pay their loans, while the loan & mortgage takers incorrectly assumes someday they'll pay it with their properties value, but when none those assumption is correct; nobody could pay each other anything, nobody can use those pays to pay another thing, and then another, then it inevitably collapse the whole system like dominos.

Today we have computer modeling that can examine our economy (much like climate modeling predict climate change by 2100). By virtual experimentation & prediction we can create regulation that prevent/soften future 2008-esque depression. This is what the articles above is about.
xponen
not rated yet Mar 27, 2017
It's about time we use computers to discover thing.
Maybe we could wait for economy to collapse before we learnt our lesson, or we could see them in computers before it even happen, and we listen to reports about them & we learn from them.
cantdrive85
3 / 5 (1) Mar 27, 2017
New international banking rules would not prevent another financial crisis

The last crisis was a debt crisis. How did we "solve" that crisis? More debt! As such, there will be another crisis. It is inevitable, and the next one will be much worse because there will be much more debt.
gkam
1.8 / 5 (5) Mar 27, 2017
"the next one will be much worse because there will be much more debt."
-------------------------------

Paid for your Bush Wars?
Macrocompassion
not rated yet Mar 28, 2017
The next economic crisis will be in 2025, 18 years after the previous one. This forecast is based on a completely different basis to that suggested in the above article on the banks and their use of money. Money is involved but the steep rise in land values is due to the necessary way governments use tax payers money to improve the infrastructure. This makes the land more valuable due to its greater productivity. Speculators in land values anticipate this as their withholding land from its proper use makes the land access cost rise even faster. When the system eventually breaks down there is a crisis of the kind we had in 2007. The answer is for a new policy regarding taxation not for the banks to be better regulated. TAX LAND NOT PEOPLE; TAX TAKINGS NOT MAKINGS!

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