SYRTO Project:Contents, Objectives, and Structure

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

Roberto SavonaDepartment of Economics and ManagementUniversity of Brescia

Brescia, 25 June 2013

Agenda

Agenda

Objectives Structure Timeline EWS SYRTO Code

Objectives

Objectives

Sovereigns Banks and other Financial

Intermediaries (BFIs)

Corporations

Focusing on the European Union we explores the relationships between (and among)

S–BFIs–C

Objectives

Identify the common and the sector-specific (idiosyncratic) risks, and assemble a web-based 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

a system of Rules of Thumb by monitoring a series of leading indicators so as to minimise the possible negative impacts from systemic crises

Two main objectives

1. EWS

Objectives

Realize 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

the best mechanisms for ensuring an effective interplay between, and coordination of, macro and micro-prudential responsibilities

Two main objectives

2. SYRTOCode

Structure

StructureWho we are

CONSORTIUMI. University of BresciaII. Centre National de la Recherche Scientifique (CNRS) III. Athens University of Economics and Business – Research Center IV. University Cà Foscari VeniceV. University of Amsterdam Stichting VU-VUMC (VUA)

ADVISORY BOARDI. Scientific Division

A. Research UnitB. Supervisory Unit

II. Policy Division

StructureHow do we do? The research activity is articulated in Work Packages (WPs)

Data Collection(1) Data center(2) Data mgmt

WP 2 - Venice

Idiosyncratic RiskMappingRisk sources for S–BFIs–C

WP 3 – CNRS

Two-way RiskConnectionsRisk connections for S–BFIs–C

WP 4 – Athens

Systemic RiskIndicatorsNew measurement approaches and indicators for systemic risk(s)

WP 5 – Venice

Joint RiskConnectionsMultidimensional risk connections for S–BFIs–C

WP 6 – VUA

Structure

Data Collection(1) Data center(2) Data management

WP 2 - Venice

Idiosyncratic RiskMappingRisk sources for S–BFIs–C

WP 3 – CNRS

Two-way RiskConnectionsRisk connections for S–BFIs–C

WP 4 – Athens

Systemic RiskIndicatorsNew measurement approaches and indicators for systemic risk(s)

WP 5 – Venice

Joint RiskConnectionsMultidimensional risk connections for S–BFIs–C

WP 6 – VUA

EWSRealization of a web-based Early Warnings System with Risk Reports

WP 7 – Brescia

SYRTO Code(1) EU Governance(2) Micro-/macro-prudential supervision

WP 8 – Brescia

… and all WPs have been conceived as a step-by-step process to realize the 2 main objectives

Timeline

TimelineMarch 2013 – February 2016SYRTO project Months 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36

WP1 MANAGEMENT T1.1 Overall Project coordinationT1.2 Scientific and technical coordinationT1.3 Administrative and financial coordinationT1.4 Project document repositoryT1.5 Project meetingsT1.6 ReportsT1.7 Monitoring and quality controlT1.8 IPR Management

WP9 COMMUNICATIONT9.1 Realization of a websiteT9.2 Conferences and meetingsT9.3 Scientific networking

Milestones M1 M2 M3

TimelineMarch 2013 – February 2016SYRTO project Months 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36

WP1 MANAGEMENT T1.1 Overall Project coordinationT1.2 Scientific and technical coordinationT1.3 Administrative and financial coordinationT1.4 Project document repositoryT1.5 Project meetingsT1.6 ReportsT1.7 Monitoring and quality controlT1.8 IPR Management

WP2 DATA COLLECTIONT2.1 Realization of a Data CenterT2.2 Realization of a data-management infrastructure

WP3 IDIONSYNCRATIC RISK MAPPINGT3.1 Identiication of the fundamental risk sources

WP4 TWO-WAY RISK CONNECTIONS ELICITATIONT4.1Exploration of the two-way causal relations

WP5 SYSTEMIC RISK INDICATORST5.1 Linkages and vulnerability of the vinancial systemT5.2 Bi-variate risk relationshipT5.3 Empirical analysis of bi-variate risk relationship

WP6 JOINT RISK CONNECTION ELICITATIONT6.1 The connection between financial-economic linkages and shocks

WP7 EARLY WARNING SYSTEM IMPLEMENTATIONT7.1 Realization of the Early Warning SystemT7.2 Construction of a web platform

WP8 SYRTO CODET8.1 Policy, monetary, and regualtory implication of systemic risksT8.2 Realization of the SYRTO Code

WP9 COMMUNICATIONT9.1 Realization of a websiteT9.2 Conferences and meetingsT9.3 Scientific networking

Milestones M1 M2 M3

EWS

EWSStep 1: Approaches to identify risks and vulnerabilities

Dynamic Conditional Correlations Copula functions and copula-based models Principal Component Analysis Regime-switching models Frailty models Dynamic latent component analysis Granger causality tests Shrinkage-based regressions Latent Class Analysis Contingent Claim Analysis (CCA) Dynamic Factor Models of Tail Risks

EWSStep 2: Risk Dashboard – Jointly with ECB (MaRS)

Sovereign Risks Bank Risks Corporate Risks Market Risks Credit Risks Funding and Liquidity Risks Policy Uncertainty Interlinkages Composite measures Monetary and Policy Intervention Perception

EWSStep 3: Risk Thresholds and Warning Signals

Regression Trees CRAGGING (Vezzoli – Stone) Heat Maps …

SYRTO code

SYRTO CodeThe objective is to realize a SYRTO Code collecting a series of recommendations and prescriptions on:

governance structures monetary and fiscal systems interactions micro-/macro-prudential responsibilities

SYRTO CodeThe Code will be articulated in three main chapters:

Chapter I: Prevention

Identification of a series of rules of thumbs in order to limit the triggers of systemic risk

SYRTO CodeThe Code will be articulated in three main chapters:

Chapter I: Prevention

Identification of a series of rules of thumbs in order to limit the triggers of systemic risk

Chapter II: Mitigation

Limiting systemic shocks transmission and prevent conflicts of interest and ineffective policy interventions

SYRTO CodeThe Code will be articulated in three main chapters:

Chapter I: Prevention

Identification of a series of rules of thumbs in order to limit the triggers of systemic risk

Chapter II: Mitigation

Limiting systemic shocks transmission and prevent conflicts of interest and ineffective policy interventions

Chapter III: Stabilization

Ex post policy interventions to stabilize the Euro system

SYRTO CodeMonetary and Policy Intervention Perceptions (for European citizens)

Using recent techniques used to measure the job satisfaction pertaining to Rasch Rating Scale Model, and based on data from EC (Eurobarometer qualitative surveys), we will try to identify potential areas of improvement of the macro-prudential policy making process

This project is funded by the European Union under the

7th Framework Programme (FP7-SSH/2007-2013) Grant Agreement n°320270

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www.syrtoproject.eu

This document reflects only the author’s views. The European Union is not liable for any use that may be made of the information contained therein.