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The purpose of this paper is to propose an object-oriented model of financial simulations which aims to test the applicability and suitability of the proposed measures of Basel III with respect to the prevention of banking crises.

The authors introduce an object-oriented model of financial simulations in the banking sector, namely, virtual banking (VBanking). The system is based on behavioural simulation of economic agents and allows for transactions between them, using various forms of financial assets. VBanking has been implemented as an automated stand-alone model, allowing for repetitive simulations under the same parameter sets, producing an efficient series of statistical data.

Interpretation of the resulting data suggests that some of the criticism against the proposed measures is justified, as neither economic crises nor contagion are diminished under Basel III. At the same time, the authors’ findings support that the stability goal is met, at least in part.

The model encompasses a relatively small part of the banking sector, while the authors choose not to deal with the production part of the economy. However, these limitations do not hinder the validity and importance of the authors’ findings.

The originality of this article lies in the use of an object-oriented behavioural model and in the resulting model application that is based on it. This enables the authors to run a series of simulations with different parameters, the results of which the authors can then compare. The authors’ findings can contribute to the authorities’ efforts to ameliorate the policies of Basel III.

The recent financial crisis provides an opportunity to examine the management of local government investment pools (LGIPs). This study examines asset concentration of current LGIPs to find if investment practices of LGIPs are consistent with the objective of prudent management of public funds. Using cross-sectional data of 72 LGIP portfolios, exploratory factor analysis was conducted. Findings suggest that there are five underlying factors that describe the investment practices of current LGIP portfolios. The findings also suggest that LGIP investment managers considered return on investment when they chose investment instruments. However, LGIP managers put more focus on the safety of investment when they allocated assets in their portfolio.