## ABBA: An Agent-Based Model of the Banking System

_IMF Working Papers, June 9, 2017_

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## Bibliographic details
- Authors: Jorge A Chan-Lau
- Published: June 9, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484300688.001

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### Overview and purpose
- ABBA is an agent-based model for analyzing risks in the banking system that incorporates banks’ inherent heterogeneity and adaptive behavior in response to shocks and changes in business conditions and the regulatory environment.
- The model endogenously forms interbank networks driven by banks’ business decisions.
- ABBA can serve as a basic building block for further development of large, bottom-up agent-based macro-financial models.

### Model features and bank decision rules
- Banks’ decisions in ABBA are contingent on banks’ balance sheet and capital position.
- The platform allows for:
  - dividend payment rules;
  - credit expansion decisions;
  - dynamic balance sheet adjustment via risk-weight optimization.
- ABBA explicitly models interbank relationships through interbank loan formation and the resulting interconnectedness.

### Risks and dynamics analyzed
- The platform is used to illustrate effects of changes in regulatory requirements on:
  - solvency risk;
  - liquidity risk;
  - interconnectedness risk.
- Key model elements and terminology preserved in the platform include:
  - agent-based model, creditor bank share, excess reserves, experiences default, insolvent creditor bank, interbank loan, interest bank, lending bank, liquidation loss, loan portfolio, Loans, return on equity, solvency.

### Intended applications and contributions
- Illustrative tool to show how regulatory changes propagate through banks’ adaptive behavior and interbank networks.
- Foundation for developing detailed, bottom-up macro-financial agent-based frameworks that capture endogenous network formation and heterogeneous bank responses.

### Publication and metadata
- Author: Jorge A Chan-Lau
- Publication date: June 9, 2017
- Series: Working Paper No. 2017/136
- Issue: 136
- Volume: 2017
- Pages: 33
- DOI: https://doi.org/10.5089/9781484300688.001
- ISBN: 9781484300688
- ISSN: 1018-5941

*IMF Working Paper — "ABBA: An Agent-Based Model of the Banking System" by Jorge A Chan-Lau (June 9, 2017).*

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_Source: https://www.imf.org/en/publications/wp/issues/2017/06/09/abba-an-agent-based-model-of-the-banking-system-44916_