An agent-based approach to interbank market lending decisions and risk implications

Liu, Anqi ORCID: https://orcid.org/0000-0002-9224-084X, Mo, Cheuk Yin Jeffrey, Paddrik, Mark E. and Yang, Steve Y. 2018. An agent-based approach to interbank market lending decisions and risk implications. Information 9 (6) , pp. 1-18. 10.3390/info9060132

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Abstract

In this study, we examine the relationship of bank level lending and borrowing decisions and the risk preferences on the dynamics of the interbank lending market. We develop an agent-based model that incorporates individual bank decisions using the temporal difference reinforcement learning algorithm with empirical data of 6600 U.S. banks. The model can successfully replicate the key characteristics of interbank lending and borrowing relationships documented in the recent literature. A key finding of this study is that risk preferences at the individual bank level can lead to unique interbank market structures that are suggestive of the capacity with which the market responds to surprising shocks.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Mathematics
Subjects:	H Social Sciences > HB Economic Theory Q Science > QA Mathematics
Publisher:	MDPI
ISSN:	2078-2489
Date of First Compliant Deposit:	19 October 2018
Date of Acceptance:	26 May 2018
Last Modified:	06 May 2023 05:06
URI:	https://orca.cardiff.ac.uk/id/eprint/116022

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