The European Physical Journal B

, Volume 73, Issue 1, pp 29–40

Does Basel II destabilize financial markets? An agent-based financial market perspective

Topical Issue on Interdisciplinary Applications of Physics in Economics and Finance

DOI: 10.1140/epjb/e2009-00382-1

Cite this article as:
Hermsen, O. Eur. Phys. J. B (2010) 73: 29. doi:10.1140/epjb/e2009-00382-1


We use a financial market model that is able to replicate stylized facts of financial markets quite successfully. We adjust this model by integrating regulations of Basel II concerning market risk. The result is a considerable destabilization of the regulated financial market with a significant increase of extreme events (extraordinary profits and losses). Since the intention of Basel II regulations is to ensure banks have enough regulatory capital to withstand periods involving extraordinary losses, it is alarming that – on the contrary – these regulations may provoke an increase in precisely such extraordinary events.

Copyright information

© EDP Sciences, SIF, Springer-Verlag Berlin Heidelberg 2009

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of BambergBambergGermany