2D Bank Run: Depicting Financial Contagion Through Agent-Based Modeling

What is the 2D Bank Run Simulation?

The 2D Bank Run simulation models how depositor fear can spread through an interconnected network of banks. Each bank has a certain reserve ratio, and depositors at each bank can trigger a run if they become fearful.

This model helps us understand the mechanisms behind financial contagion and systemic risk in banking systems.

How Does Fear Contagion Work?

In this simulation, fear spreads among depositors through an interbank network. When a depositor at one bank becomes fearful, they may trigger a run, which can then spread to connected banks.

The strength of contagion is influenced by the reserve ratio and network connectivity, with higher ratios and lower connectivity generally reducing the likelihood of a cascade.

Why Does This Matter?

Understanding how fear contagion operates in financial systems can help regulators design better policies to prevent systemic failures.

This model also provides insights into the importance of reserve management and network resilience in maintaining stability within banking systems.

Real-World Applications

The principles behind the 2D Bank Run simulation are applicable to real-world financial crises, such as the 2008 global financial crisis.

By studying these models, policymakers and financial institutions can better prepare for potential contagion events.

Frequently asked questions

Try it live

Everything above runs in your browser — open 2D Bank Run — Depositor Fear Contagion Network and change the parameters while it is running. Nothing is installed, nothing is uploaded, the whole model lives in one tab.