Threadneedle is a simulation framework developed to explore the behavior of the banking system. We are aiming to reproduce the behavior of banking systems using the Basel 2 and 3 Regulatory frameworks, as well as local Icelandic regulations, as exactly as possible.
The framework uses full double-entry bookkeeping for all transactions performed within the banking system, which we have documented in the paper Description of the Operational Mechanics of a Basel Regulated Banking System for validation and checking.
Over the last fifty years, computer science has developed a great deal of experience in analyzing and troubleshooting distributed systems like the banking system. Viewed as a distributed system, the monetary system is an example of a relatively unusual (for computer science) closed network, where the operation of the system depends on packets of information (money) continuously circulating in the economy, and being used to determine the price signal for the economy.
By treating the banking system as a distributed system, and applying the same analytical techniques that we use when designing and engineering larger scale critical real-time systems such as the Internet, we hope to cast light on some of its ‘features’ such as the periodic credit crises that have afflicted western economies in the three hundred years since the effective introduction of modern banking.
Threadneedle is not just a banking simulation project. It also allows simple models of market based economies to be constructed, and monetary flows within these models to be explored. Initially we intended this to be for testing purposes, and allow us to construct experiments exploring differences between economies with constant money supplies and those with varying ones, but it has already thrown up interesting insights of its own, as can be seen in this short lecture.
Jacky Mallett — jacky at iiim.is
- Description of the Operational Mechanics of a Basel Regulated Banking System (Draft)
- What are the limits on Commercial Bank Lending? Advances in Complex Systems, August 2012.
- A system analysis of the Basel Capital Accord’s Regulatory Control over the behaviour of
Modern Banking Systems.
- Analysing the Behaviour of the Textbook Fractional Reserve Banking Model as a Complex Dynamic System. Proceedings Eighth International Conference on Complex Systems, New England Complex Systems Insitute, 2011.