EU funds project to tackle systemic financial market risks
The crises that have hit the European and international financial markets over the last couple of years are forcing us to seek alternative measures to ensure fiscal sustainability. As part of its efforts to address this issue, the European Commission is supporting a new research project targeting the development of new systemic risk indicators for 'early warning systems' that would raise red flags on looming yet early-stage financial crises. The FOC ('Forecasting financial crises') project will give governments and bankers the ammunition they need to nip problems in the bud. FOC is financed by the 'Future and emerging technologies' Open Scheme (FET Open) under the 'Information and communication technologies' (ICT) Theme of the EU's Seventh Framework Programme (FP7) to the tune of EUR 1.8 million. The FOC consortium consists of researchers from Italy, Spain, Switzerland and the UK, as well as experts from the European Central Bank (ECB). The project partners will evaluate ICT-based financial transactions and internet search queries, and will keep an eye on the build-up of risk in both the economy and financial systems. 'This new research aims to allow better monitoring of financial markets by focusing on systemic risks arising from the highly inter-connected digital information and transaction systems in the financial markets,' said Neelie Kroes, European Commission Vice-President for the Digital Agenda. A complex web of computer-based transaction systems is used to link up financial institutions. While it makes for more hassle-free transactions and activities, failure of one institution could result in the failure of many others. This snowball effect makes no distinction between healthy or sick financial institutions. Market watchers failed to adequately predict the financial crisis that hit us because the existing tools and data did not allow the experts to consider just how much the financial sector depends on these complex interactions and mutual exposures. FOC will, in a nutshell, help policymakers better understand how banking systems, stock markets and credit flows are interconnected. The software and conceptual instruments that will be created by the FOC consortium will lead to more innovative and advanced early-warning systems, effectively enabling actions required for financial market stability. The FOC partners will focus their research efforts on both financial transaction and internet search data. One example is determining the frequency of specific key words used in search engines. Various policy bodies, including the ECB and the European Systemic Risk Board, will use FOC's risk indicators to stem any financial crises that may emerge in future. Launched in September 2010 and due to end in 2013, the FOC project is part of the European Commission's initiative to stimulate high-risk ICT research in future and emerging information technologies. FET Open, meanwhile, was adopted by the European Commission in May 2010 targeting smart, sustainable and inclusive growth.
Countries
Switzerland, Spain, Italy, United Kingdom