Financial Network Analytics @ ECB

Presentation at European Central Bank
17 August 2011
Financial Network Analytics
Kimmo Soramäki
kimmo@soramaki.net

Katsushika Hokusai. The great wave off Kanagawa ~1830

Eratosthenes' map of the known world, c. 194 BC

Go is a board game that originated in China more than 2,000 years ago.

Data deluge
Data tsunami - digital information is doubling every 1.2 years
Regulatory response to recent financial crisis was to strengthen macro-prudential supervision with mandates for more regulatory data
The challenge will be to understand and analyze the data (public, commercial and regulatory)
Data enables “Analytics based policy”, i.e. the application of computer technology, operational research, and statistics to solve regulatory problems

Network maps
Erastothenescreated the first known map of the world and is considered the father of geography and the concepts of latitude and longitude (i.e. ways to measure it)
Recent financial crisis brought to light the need to look at links between financial institutions
Network are a natural way to present financiallinkage data. Mapping of the financial systemhas only begun
Maps reduce uncertainty about interconnections
Garrett, Mahadeva and Svirydenska (2011)
Soramaki, Bech et al (2006)

Intelligence
Pattern recognition is hard for computers -> the best Go programs only manage to reach an intermediate amateur level
Financial crisis are different and rare
The patterns to be recognized must be frequent enough for computers to learn
A solution is to augment human intelligence (in contrast to AI)
Intelligence amplification (William Ross Ashby 1956)

Financial Network Analytics Platform

Objectives
Provide a tool for exploration, analysis and visualization of regulatory financial data
Provide a extendible platform for custom functionality, agent based models and other simulation models
Make advances in research available to policy

Situation around March 2010
Furfine algorithm
Payment System Simulator
FNA 1.1

Because analyzing financial microdata is difficult
Files are large, content is difficult to understand
Data is incomplete and messy
Data is confidential
Most analysis packages are opaque
Error and trial
Paradigm

Platform + modules + sharing

Current modules

The network model
N3 Prop1=Aaa; Prop2=Bbb;…..
N2 Prop1=Aaa; Prop2=Bbb;…..
A1
Source=V1
Dest=V2
Props…
Network 1 – N1
Prop1=Abc
Prop2=Def
…
A2
Source=V2
Dest=V3
Props…
14
V2
Prop1=20
Prop2=Ab
Prop3=Bc
A3
Source=V2
Dest=V1
Props…
V1
Prop1=20
Prop2=Ab
Prop3=Bc
V3
Prop1=20
Prop2=Ab
Prop3=Bc
Time Series

Explain screen
Screen elements
Result panel shows command output
Access via browser in intranet, internet or desktop
And creates files (charts, data, etc)
Operation based on commands
Submit command
Each command has different parameters
‘Visualize’ screen shows created charts and layouts
Switch between ‘point-and-click’ and command line view
Files and database connections are in file panels
15

Tabs allow multiple visualisations open
All visualisations are html documents that work also outside FNA
16

Dashboard (concept)
The dashboard can combine multiple views to the data on a single screen
17
It can be available e.g. on the intranet and updated daily

Command line
All commands can be submitted using command syntax
History provides an easy way to make new scripts for research or for the dashboard
All commands submitted (also from point-and-click) are shown in history
18

Command line
Scripts can be run from the scripts panel or as regular jobs by the server
19

FNA is available at
www.fna.fi
(as from 29 August 2011)
Contact us
kimmo@soramaki.net

Technical details
Performance
Client server architecture allows use of high performance servers, computer clusters and cloud computing
High-performance graph engine (neo4j.org)
Fast client application (Google web toolkit e.g. as in gmail.com)
Security
Sensitivity and confidentiality of data creates addition constraints for analysis
Data is stored on server where it can be protected better (vs analysts desktops)
Each user accesses FNA with her own account
SSL encryption of traffic
Logging and analytics, audit trail
Integration to corporate IT
Integration to databases possible
FNA accounts can be managed centrally by IT (integration to LDAP systems)
Can run on most application servers
Modular structure allows easier updates

Financial Network Analytics @ ECB

by Kimmo Soramaki

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