Destabilization of an urban subsystem by a virtual collapse in its space–time structure

Abstract

It is shown that a virtual collapse in the space–time structure of a geographically distributed system may induce changes in the information flow field of the system and lead to instability. A case study of the commercial banking system of New York City demonstrates how a virtual collapse in the space–time structure of its check clearing process led to a transformed information flow environment in which banks had, for the first time, accurate and timely information concerning the decision-making processes of other banks. A dynamical systems model representing the behavior of the banks, both before and after the transformation, demonstrates how their competitive use of this information led to decision-making based on the decisions of others. This process of internal referencing resulted in a structurally unstable state in which perturbations, arising from asymmetric responses to seasonally changing deposit flows, accumulated with little or no decay. This caused loans to diverge from deposits and made the system susceptible to random financial perturbations that led to a banking panic. While the behavior of the aggregate system was structurally unstable, the behavior of the individual banks was stable, with the banks behaving as a coherent group. The internal referencing structural instability is of general significance for the aggregate behavior of geographically distributed systems that undergo a virtual collapse in their space–time structures and a transformation of their information flow fields.