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Fall-of-banks

by Jose Angel Rodriguez (Submitted: 11/03/2012)

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## WHAT IS IT?

This model explains the effects of a "Ball-in" or "Bank crash" in a interconnected economy.

## HOW IT WORKS

You can generate an economic systems, with random relationships between banks and companys. You can control the strong of this relationships and the size of economy, banks, and the bank in crise

## HOW TO USE IT

Using the sliders, to control the strong of interconnexions between banks APALANCAMIENTO, you can control the size of bank who star the crises BANCO-QUIEBRA, and the sizes of other banks SIZE-OTHER-BANKS.

There are two sliders additionals, the slider RECOVEY show the recovery rate of banks that simulate the possibility that a bank in crises to improve their situations, the slider BANC-PANIC simulate the increasing possibility that a bank with relationship with a bank in crises to get in crises too.

The button BAL-IN simulate the effect of a bail in process (the bank is not able to pay the debts with the other banks and offer some solutions like give to them stock shares of himself), this is a risky operation and the others banks could absorb the loses or set in crises too.

The button BANK-CRASH simulate the crash of the bank who star the crises and the spread of this problem to other turtles (companys and other banks).

## THINGS TO NOTICE

At the run of BANCK-CRASH, the other banks shrink in size and valor simulating the debt loses (the loans of the other banks to the bank who star the crisis can't be payed), and the loses could star a crises in the banks too.

At the run of BAIL IN the other banks could star in crises, they could be payed by their loans to the bank who star the crises, but this pay is less valuable (stock shares are less valuable than the return of the loan), and this could star a crises too.

You can see not banking turtles (simulating no financieral companys, real state investments, ...) that could star crises too in the two situations. The companys have loans wiht banks and need to renew the loans and the access to credit for improve their working process, when banks are in crises the no financieral turtles have problems to get new loans, and could star a crises too depending of the relative size of the banks who was in crises.

A mid term crises bring the company or the bank to bank-rupt and dissapear of economy (it will die).

You can see that the relative size of bank who star the crises, the financial leverage (APALANCAMIENTO) and the recovery rate of banks in crises could give more different outputs. But, when you try the model several times, in the best conditions (low financial leverage, the bank who star the crises are smaller than other banks, and big recovery rate) the crises could arrive to all the economy destroying all.

## HOW TO CITE

If you mention this model in a publication, we ask that you include these citations for the model itself and for the NetLogo software:

* Jose Rodriguez (2012). http://www.joserodriguez.info/bloc
* Wilensky, U. (1999). NetLogo. http://ccl.northwestern.edu/netlogo/. Center for Connected Learning and Computer-Based Modeling, Northwestern University, Evanston, IL.

## COPYRIGHT AND LICENSE

Copyright 2012 Jose Rodriguez

![CC BY-NC-SA 3.0](http://i.creativecommons.org/l/by-nc-sa/3.0/88x31.png)

This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License. To view a copy of this license, visit http://creativecommons.org/licenses/by-nc-sa/3.0/ or send a letter to Creative Commons, 559 Nathan Abbott Way, Stanford, California 94305, USA.

Commercial licenses are also available.

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