Does Basel II destabilize financial markets? An agent-based financial market perspective
University of Bamberg, Department of Economics, Feldkirchenstrasse 21, 96045 Bamberg, Germany
Corresponding author: email@example.com
Revised: 11 September 2009
Published online: 7 November 2009
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.
PACS: 89.65.Gh – Economics; econophysics, financial markets, business and management
© EDP Sciences, Società Italiana di Fisica, Springer-Verlag, 2009