Physics of polish banking system

Tomasz Gubiec 1Mateusz J. Wiliński 1Piotr Ochnicki 1Paweł Smaga 2,3

1. Uniwersytet Warszawski, Wydział Fizyki, ul. Pasteura 5, Warszawa 02-093, Poland
2. Szkoła Główna Handlowa (SGH), Warszawa 02-554, Poland
3. Narodowy Bank Polski (NBP), Świętokrzyska, Warszawa 00-919, Poland

Abstract

On September 15, 2008, the Lehman Brothers bank announced its bankruptcy. This started a panic on the US stock exchange and the mortgage crisis that has spread throughout the world. The consequences of these events are still visible today. Since the events of 2008, concepts such as systemic risk and financial contagion are in the common language. At the same time the development of models of the interbank market has gained tremendous momentum.
I want to present a new model of the Polish banking system; describing its dynamics and inter-dependencies with other elements of the Polish financial system (e.g. Stock Exchange). In our model we take into account three possible ways of financial contagion. The first, most direct way of propagation is by a collapsing bank not paying its obligations. Banks that granted loans bear this loss, which worsens their financial situation. Other, perhaps less obvious, a falling bank, in order to pay its obligations, must sell its external assets in significant amounts, what results in an immediate and significant decrease in their value. Not only does it not recover the full value of the assets and repays liabilities to a smaller extent, it also affects the decrease in the value of assets held in the portfolios of other banks - worsening their situation. Last, but not least, there is the decline in the availability of interbank loans due to a decrease in trust. This results in banks having lower resistance to deterioration of their financial situation.
Most of the previous models tested the system's reaction to an external shock e.g. collapse of one or more banks. In contrast, in our dynamical model of the entire banking system crashes can occur as an internal feature of the system.

 

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Presentation: Oral at 8 Ogólnopolskie Sympozjum "Fizyka w Ekonomii i Naukach Społecznych", by Tomasz Gubiec
See On-line Journal of 8 Ogólnopolskie Sympozjum "Fizyka w Ekonomii i Naukach Społecznych"

Submitted: 2015-09-06 22:55
Revised:   2015-09-06 22:56