  Threadneedle is a multi-agent simulation framework, based on a full double
entry book keeping implementation of the banking system's fundamental
transactions. It is designed to serve as an experimental test bed for economic
simulations that can explore the banking system's influence on the
macro-economy under varying assumptions for its regulatory framework, mix of
financial instruments, and activities of borrowers and lenders. Support is
provided for Basel Capital and central bank reserve regulatory frameworks,
inter-bank lending and correct handling of loan defaults within the bank
accounting framework.
  In this paper we provide an overview of the design of Threadneedle, and the
rational for the double entry book keeping approach used in its implementation.
We then provide evidence from a series of experiments using the simulation that
the macro-economic behaviour of the banking system is in some cases sensitive
to double entry book keeping ledger definitions, and in particular that loss
provisions can be systemically affecting. We also show that credit and money
expansion in Basel regulated systems is now dominated by the Basel capital
requirements, rather than the older central bank reserve requirements. This
implies that bank profitability is now the main factor in providing new capital
to support lending, meaning that lowering interest rates can act to restrict
loan supply, rather than increasing borrowing as currently believed. We also
show that long term liquidity flows due to interest repayment act in favour of
the bank making the loan, and do not provide any long term throttling effect on
loan expansion and money expansion as has been claimed by Keynes and others.
