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.
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