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Systemic financial risk indicators and securitised assets: an agent-based framework

  • Andrea MazzocchettiEmail author
  • Eliana Lauretta
  • Marco Raberto
  • Andrea Teglio
  • Silvano Cincotti
Regular Article

Abstract

The paper presents an agent-based model of a credit economy which includes a securitisation process and a bailout mechanism for bank bankruptcies. Within this framework, banks are able to sell mortgages to a financial vehicle corporation, which finances its activity by creating mortgage-backed securities and selling them to a mutual fund. In turn, the mutual fund collects liquidity by selling shares to households and remunerates them with a monthly interest. The impact of this mechanism is analysed by means of computational experiments for different levels of banks’ securitisation propensity. Furthermore, we study a set of systemic risk indicators which have the aim of assessing the imbalances in the financial system. Two of them are the mortgage-to-GDP ratio and the capital adequacy ratio, which are constructed to detect only the on-balance sheet changes in banks’ credit exposure. We consider two additional indicators, similar to the previous ones with the only difference that they are also able to account for the off-balance sheet items. Moreover, we adopt an indicator, the so-called “virtuous–unvirtuous cycle” indicator, which, besides off-balance assets, targets also the GDP. The results show that higher securitisation propensity weakens the financial stability of banks with relevant effects on different sectors of the economy. Most importantly, the analysis of systemic risk reveals the important issue of designing suitable systemic risk indicators for predicting incoming financial crises, finding that an essential feature of these indicators should be to integrate banks’ off-balance sheet assets.

Keywords

Systemic risk Systemic financial risk indicators Securitisation Housing market Agent-based models 

JEL Classification

C63 R31 G21 G23 

Notes

Acknowledgements

The authors acknowledge EU-FP7 collaborative project SYMPHONY (www.projectsymphony.eu) under Grant No. 611875.

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  1. 1.DIME-CINEFUniversity of GenoaGenoaItaly
  2. 2.DICEAMMediterranea University of Reggio CalabriaReggio CalabriaItaly
  3. 3.Research Centre of Financial and Corporate Integrity (CFCI), Faculty of Business and LawUniversity of CoventryConventryUK
  4. 4.Department of EconomicsUniversity Ca’ Foscari of VeniceVeniceItaly
  5. 5.Jaume I UniversityCastellónSpain

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