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A microeconomic model of banking with a strategically determined interbank market
Thesis (PhD)--Stellenbosch University, 2020.
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| Format: | Thesis |
| Language: | en_ZA |
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Stellenbosch : Stellenbosch University
2020
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| _version_ | 1867614091793661952 |
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| access_status_str | Open Access |
| author | Du Rand, Gideon Petrus |
| author2 | Georg, Co-Pierre |
| author_browse | Du Rand, Gideon Petrus Georg, Co-Pierre |
| author_facet | Georg, Co-Pierre Du Rand, Gideon Petrus |
| author_sort | Du Rand, Gideon Petrus |
| collection | Thesis |
| dc_rights_str_mv | Stellenbosch University |
| description | Thesis (PhD)--Stellenbosch University, 2020. |
| format | Thesis |
| id | oai:scholar.sun.ac.za:10019.1/107973 |
| institution | Stellenbosch University (South Africa) |
| language | en_ZA |
| last_indexed | 2026-06-10T12:46:31.699Z |
| license_str | Other — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from SUNScholar — Stellenbosch University Repository |
| publishDate | 2020 |
| publishDateRange | 2020 |
| publishDateSort | 2020 |
| publisher | Stellenbosch : Stellenbosch University |
| publisherStr | Stellenbosch : Stellenbosch University |
| record_format | dspace |
| source_str | SUNScholar — Stellenbosch University Repository |
| spelling | oai:scholar.sun.ac.za:10019.1/107973 A microeconomic model of banking with a strategically determined interbank market Du Rand, Gideon Petrus Georg, Co-Pierre Du Plessis, Stan, 1972- Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Economics. Microeconomic model of banking Interbank market Banks and banking Financial institutions Financial contagion UCTD Thesis (PhD)--Stellenbosch University, 2020. ENGLISH ABSTRACT : This dissertation generalizes the seminal model of financial contagion by Allen and Gale (2000) to allow an aggregate liquidity demand shock to occur with positive probability. A shock with positive probability can affect the ex ante portfolio choices of banks as well as the welfare of consumers. I numerically characterize the symmetric Nash equilibrium of the non-cooperative game between two representative regional banks. The solution fully characterizes banks’ exante optimal choices. I obtain the following results: (i) when the probability of the shock approaches zero, the allocation of Allen andGale (2000) is obtained; (ii) in general, the equilibrium has three distinct characterizations, depending on the parameters: a no-default equilibrium, where no bank defaults; a single-default equilibrium where only the shocked bank defaults; and amutual-default equilibrium, where the shock leads to contagion. When banks are able to internalize the ex-ante threat of a shock, contagion is rare: it is possible in, at most, 4% of the parameter space, and only for small shock probabilities. Additionally, optimal risk-sharing is studied analytically in two novel aggregate benchmarks: a global bank with full information and a global bank with asymmetric information. A global bank with full information can observe consumer types. The allocation of a global bank with full information involves default after a large but sufficiently unlikely aggregate liquidity demand shock. Where default is not optimal, the allocation involves (i) holding excess liquidity when the shock is relatively likely, (ii) partial liquidation of the investment after a small and unlikely shock, and (iii) both excess liquidity and partial liquidation for shocks of intermediate size and probability. Under asymmetric information, a global bank cannot observe consumer types, and can offer less liquidity insurance than under full information. Finally, when the numerically approximated Nash equilibrium is characterized by either no default or contagion, the decentralized solution attains thewelfare of the benchmarks within numerical precision. However, when the Nash equilibrium is characterized by single default, the decentralized equilibrium is superior to the aggregate benchmarks. Thus, a global bank with regional branches can be inefficient for certain parameters in this model, relative to independent regional banks. AFRIKAANSE OPSOMMING: In hierdie proefskrif word die model van die oordraagbare verspreiding van finansiële probleme van Allen en Gale (2000) uitgebrei om ’n universele likiditeitskok met positiewe waarskynlikheid toe te laat. So ’n skok kan die ex ante keuse van bateportefeulje van banke asook die welsyn van verbruikers beïnvloed. Hierdie tesis los die simmetriese Nash ekwilibrium van die spel tussen twee verteenwoordigende plaaslike banke numeries op. Die belangrikste resultate is as volg: (i) die model lewer dieselfde verbruikerstoedeling as in Allen en Gale (2000) soos die waarskynlikheid van die algemene likiditeitskok na nul afneem; (ii) in die algemeen het die Nash ekwilibrium drie eienskappe, wat afhang van die parameters van die model: daar is ’n ekwilibrium waar geen bank bankrot gaan nie; ’n ekwilibrium waar slegs een bank bankrot gaan; en ’n algemene bankrotskap ekwilibrium, waar die bankrotskap van een bank oorgedra word en die bankrotskap van die ander bank veroorsaak. Selfs wanneer banke die ex ante risiko van ’n likiditeitskok kan antisipeer, is die ekwilibrium met oordraagbare bankrotskappe skaars: in slegs 4% of minder van die totale ruimte van modelparameters is oordraagbare bankrotskappe moontlik. Boonop gebeur oordraagbare bankrotskap slegs as die waarskynlikheid van ’n skok klein genoeg is. Die optimale verdeling van risiko word ook bestudeer, deur middel van suiwer analitiese metodes. Twee nuwe welsynsmaatstawwe word op die makrovlak aangebied: ’n globale bank met volledige inligting en ’n globale bank met asimmetriese inligting. ’n Globale bank met volledige inligting kan die verbruikerstipe identifeer. As die skok groot en onwaarskynlik genoeg is, behels dié oplossing die bankrotskap van die globale bank, en derhalwe die volledige likwidasie van alle bates. Andersins het die oplossing een van die volgende eienskappe: (i) oormatige likiditeit, as die skok relatief onwaarskynlik is; (ii) gedeeltelike likwidasie van investering, as die skok klein en onwaarskynlik genoeg is, of (iii) beide oormatige likiditeit en gedeeltelike likwidasie van investering, as die skok gemiddeld groot en waarskynlik is. ’n Globale bank met asimmetriese inligting kan nie die verbruikerstipe identifiseer nie. Die resultaat is dat ’n globale bank met asimmetriese inligting minder likiditeitsversekering aan ’n verbruiker kan bied. Laastens dui die resultate dat ’n enkele, globale bank in hierdie model sub-optimaal is wanneer die Nash ekwilibirium slegs een bankrotskap voorspel. Andersins lewer die Nash ekwilibriumdie optimale uitkoms. Doctoral 2020-02-24T06:54:00Z 2020-04-28T12:12:09Z 2020-02-24T06:54:00Z 2020-04-28T12:12:09Z 2020-03 Thesis http://hdl.handle.net/10019.1/107973 en_ZA Stellenbosch University xiv, 158 pages ; illustrations, includes annexures application/pdf Stellenbosch : Stellenbosch University |
| spellingShingle | Microeconomic model of banking Interbank market Banks and banking Financial institutions Financial contagion UCTD Du Rand, Gideon Petrus A microeconomic model of banking with a strategically determined interbank market |
| title | A microeconomic model of banking with a strategically determined interbank market |
| title_full | A microeconomic model of banking with a strategically determined interbank market |
| title_fullStr | A microeconomic model of banking with a strategically determined interbank market |
| title_full_unstemmed | A microeconomic model of banking with a strategically determined interbank market |
| title_short | A microeconomic model of banking with a strategically determined interbank market |
| title_sort | microeconomic model of banking with a strategically determined interbank market |
| topic | Microeconomic model of banking Interbank market Banks and banking Financial institutions Financial contagion UCTD |
| url | http://hdl.handle.net/10019.1/107973 |
| work_keys_str_mv | AT durandgideonpetrus amicroeconomicmodelofbankingwithastrategicallydeterminedinterbankmarket AT durandgideonpetrus microeconomicmodelofbankingwithastrategicallydeterminedinterbankmarket |