The Impact of the Central Bank as a Regulator on Systemic Risk in the Iranian Interbank Loan Market: An Agent-Based Model

Hamldar, Monire; Komijani, Akbar; Mehrara, Mohsen

doi:10.22059/ier.2026.393297.1008225

The Impact of the Central Bank as a Regulator on Systemic Risk in the Iranian Interbank Loan Market: An Agent-Based Model

Articles in Press

Document Type : Research Paper

Authors

Monire Hamldar

Akbar Komijani

Mohsen Mehrara

Faculty of Economics, University of Tehran, Tehran, Iran.

10.22059/ier.2026.393297.1008225

Abstract

Financial markets are inherently exposed to systemic risk (SR)—the risk that the failure of a few entities could trigger a cascading collapse across the entire financial system. Recently, SR has become quantifiable through the DebtRank measure, which is applied to financial networks where nodes represent financial institutions and edges capture the magnitude and structure of exposures, including loans, liabilities, and other contractual obligations. In this paper, we estimate the marginal contribution of individual interbank liabilities to overall systemic risk within the Iranian banking network using empirical data from 2021. We propose a novel regulatory mechanism for the central bank aimed at mitigating systemic risk in the interbank loan market by minimizing the expected loss propagated through the system. Within this framework, borrowing banks are matched with lenders that contribute the least additional risk to the network. Following the implementation of this optimal mechanism, the central bank experiences a reduction in its expected systemic loss, thereby benefiting from a more balanced distribution of systemic risk across the interbank loan market.

Keywords

Agent-based modelling

Banking regulation

Central Bank

DebtRank

Systemic risk

Subjects