In the wake of the global economic crisis, the European Commission is funding new research into systemic financial market risks, exploring how complex, highly inter-connected digital information and transaction systems leave institutions exposed.
The EC argues that one reason the severity of the recent financial crisis was not adequately predicted was because existing tools and data did not allow experts to sufficiently consider the extent to which the sector relies on complex computer-based interactions and mutual exposures.
It's now backing a three year project that sees researchers from universities in Italy, Spain, Switzerland and the UK, as well as experts at Yahoo! and the European Central Bank, analyse the complex system of global, ICT-based financial transactions, along with Internet search queries, to monitor the build-up of risk in the financial system and the economy as a whole.
The aim of the "Forecasting Financial Crises" project is to improve policy makers' understanding of how banking systems, stock markets and the flow of credit are mutually interconnected.
The group hopes that conceptual and software instruments developed during the research could help develop early-warning systems that would permit actions to be taken if needed to stabilise financial markets.
The research will focus not only on financial transaction data, but also on Internet search data such as the frequency of certain key words related to finance in search engines.
Ultimately, the aim is to develop new risk indicators that could be used by policy bodies like the European Central Bank, the European Systemic Risk Board, or the Basel Committee on Banking Supervision to help to prevent future financial crises.
The project - Web site here - began in September and will run until 2013 at a cost of EUR2.48 million, of which the EC is providing EUR1.8 million.