Impact of bankruptcy through asset portfolios

Abstract

We investigate the Japanese banking crisis in the late 1990s with a simple network based mathematical model, which allows us to simulate the crisis as well as to obtain new perspective through analytic solution of our network model. We effectively identify the actual bankrupted banks and the robustness of the banking system using a simulation model based on properties of a bi-partite bank-asset network. We show the mean time property and analytical solution of the model revealing aggregate time dynamics of bank asset prices throughout the banking crisis. The results disclose simple but fundamental property of asset growth, instrumental for understanding the bank crisis. We also estimate the selling pressure for each asset type, derived from a Cascading Failure Model (CFM), offering new perspective for investigating the phenomenon of banking crisis.