Dr. Jacky Mallet, Ph.D. graduate from MIT, will be holding a talk at Reykjavik University on her research on modern banking systems and economic theory. Using complex dynamic systems, her computer simulations have yielded evidence challenging some of the assumptions on which modern economic theories are based.

A number of deficiencies in the textbook model of the banking system’s behaviour will be demonstrated in the talk, titled Analysing the Behaviour of the Textbook Fractional Reserve Banking Model as a Complex Dynamic System.

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Dr. Jacky Mallet

Dr. Mallet has worked, amongst other things, as a Research Assistant at MIT’s Object Based Media Group and as a Team Leader of R&D at Sony. She currently works as a Distributed Systems Architect at CCP Games, Inc. She is an affiliate researcher of the Icelandic Institute for Intelligent Machines.

Brief Overview of the Presentation

Modern banking systems are based on a recursive relationship between lending and deposits that is generically known as fractional reserve banking. The simplified model of the system presented in introductory economic textbooks is notably deficient, in that it fails to include either loan defaults or loan repayments.

In this talk will be briefly discussed the historical context of economic theory on the operation of the banking system, and reviewed the different forms it has taken over the several centuries it has been in use. A simple computer simulation of the textbook model will then be presented which includes loan repayments and interbank lending, and a number of deficiencies in the textbook models predictions will be demonstrated.

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