Munich Personal RePEc Archive

Size effect in transitional dynamics of the banking network

Garcia, Alfredo Daniel and Szybisz, Martin Andres (2017): Size effect in transitional dynamics of the banking network.

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We consider a developed economy banking system, that, when surpass certain size, may destabilize and even enter in chaos. Taking Deposits (D_t), Reserves (R_t), Loans (L_t), the ratio of (R_t) to (D_t) and a parameter γ that weights endogenously the system memory, we analyse stability and the possibility of chaos. Using data for the U.S. between 1960 and 2012 we found that a maximum instability state is verified in 2008 when the crisis hits the U.S. banking system core carrying to a public bailout. A larger system does not necessarily lead to robustness but can expand to greater fragility. A proposed banking system stability indicator is also analysed.

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