SYRTO

"SYstemic Risk TOmography: Signals, Measurements, Transmission Channels, and Policy Interventions"

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 Obiettivo del progetto (Objective)

'During the second half of 2011 sovereign and banking risks increased in the Eurozone in an environment of weakening macroeconomic growth prospects. Contagion effects have become substantial also accelerated by the interplay between vulnerability of public finances and financial sector. Furthermore, bank funding pressures increased markedly thus feeding the fear of the Euro crash. The SYRTO project aims at exploring the relationships between sovereigns – banks and other financial intermediaries (BFIs) – corporations of the European Union with the following objectives: 1. Identify the common (”fundamental”) and the sector-specific (idiosyncratic) risks, and assemble an Early Warnings System (EWS) to be used as risk barometer for each sector and countries alike, in order to identify potential threats to financial stability, and as a system of rule of thumbs by monitoring a series of leading indicators so as to minimise the possible negative impacts from systemic crises, preventing contagion effects also including the appropriate mechanisms to restore systemic crisis problems. 2. Explore policy and monetary issues relative to systemic risk developing a “SYRTO Code” in order to detect a series of recommendations, also expressed in terms of EWS prescriptions, on the appropriate governance structures for EU to prevent and minimise systemic risks, and on the best mechanisms for ensuring an effective interplay between, and coordination of, macro and micro-prudential responsibilities. SYRTO is conceived, articulated and devoted to lay the foundations for a better macro-economic and monetary integration in Europe. The expected impacts of the project are directed towards the developing of conceptual and analytical underpinnings for efficient macroprudential policies in order to reshaping the European economy and strengthening the political unity of the EU.'

Introduzione (Teaser)

The euro area crisis, market disturbances and speculation about further contagion are fuelling financial instability. An EU initiative is devising risk measures to identify links and weaknesses in the financial system.

Descrizione progetto (Article)

In this context of economic uncertainty, the EU-funded http://www.syrtoproject.eu/ (SYRTO) (Systemic risk tomography: Signals, measurements, transmission channels, and policy interventions) project aims to determine the risks of the financial system, develop an early warning system (EWS) for systemic risks, and make recommendations to prevent and manage such risks.

Halfway through its three-year period, the project focused on examining sector-specific risks within the financial system by identifying and understanding the major risk sources for sovereigns, banks and other financial intermediaries (BFIs), and corporations. To this end, work has included approaches to market reactions, credit default swap and stock markets, exploration of credit risk in large banking systems and data mining to find optimal tools for forecasting corporate defaults.

Another key project activity has been the study of key risk relationships and connections among sovereigns, BFIs and corporations. Statistical and econometric techniques were used to explore two-way risk connections between the three. Various approaches were also employed to identify the connection between related financial and economic links and unexpected or unpredictable events that negatively affect economies.

Financial and economic data was compiled on the euro area, the EU-28, Japan and the United States. This resulted in measures and indicators to monitor markets, financial institutions and the economy, and to assess the impact of risks. The systemic risk measures and economic and financial indicators will be used to develop the web-based EWS.

Work is underway on a 'code' that gathers recommendations on governance structures for the EU to counteract and reduce systemic risks. As such, project partners have examined monetary, policy and regulatory issues concerning financial and economic stability.

The methodologies currently being developed in SYRTO will ultimately help to prevent, manage and resolve systemic crises in the euro area. Financially liberalised economies in Europe stand to benefit from stable financial conditions.