Credit risk: an agent‐based model of post‐credit decision actions and credit losses in banks

The credit crisis in 2007/2008 has increased the focus on bank credit risk. This paper uses an agent‐based model (ABM) to investigate the impact of bankers’ post‐credit decision actions on bank credit losses that are induced by lending to corporate clients. The banker agents are modelled according to results obtained from a survey that was distributed to bankers who are permitted to grant credit to firms. The results show that post‐credit decision actions have substantial effects on bank credit losses, thus implying that regulators should consider organizational factors as a complement to bank assets when assigning capital requirements to banks. The study also aims to point to a new area of application of ABMs for both researchers and practitioners. Whereas previous research has used ABMs to simulate financial markets, this study suggests that financial organizations could be a vital area of application.