IMPLEMENTATION OF BANKING DYNAMICS MODEL USING A DETERMINISTIC DIFFERENTIAL EQUATION SYSTEM

• Main Author: Madeline Santosa, Tricia
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/82351
• Institution: Institut Teknologi Bandung

Bank is a financial intermediary institution established with the authority to accept deposits from customers and channel those funds to creditors in need. Banks play a crucial role in the development of a country’s economics. Therefore, the government needs to maintain the stability of the financial system to ensure its optimal functioning. One way to maintain financial stability is by modeling the movements of bank’s components using mathematical equations. Deposits, loans, and equity will be modeled using a modified logistic differential equation system. The modification involves adding a securities component to ensure that reserve calculations comply with current regulations. The parameters of this dynamic model will be estimated using the spiral optimization algorithm based on actual data obtained from the quarterly financial reports of each bank. The accuracy of the model will be measured based on the mean average percentage error obtained. The objective of this research is to observe the long-term behavior of the bank’s components. Therefore, this study will also analyze the sensitivity of the model when the parameters of non-performing loans and deposit withdrawals are varied. The components of deposits and loans have a negative linear relationship with these parameters, whereas the equity component has a positive relationship with both parameters. Additionally, equilibrium will be found using the Broyden method and its stability will be analyzed using the Routh-Hurwitz stability criterion. The equilibrium obtained is influenced by the previously estimated parameters, so the relationship between the equilibrium of bank balance sheet components and the parameters of non-performing loans and deposit withdrawals will be analyzed.