Financial Network Analytics

Kimmo Soramäkikimmo@soramaki.net

Presentation at European Central Bank

17 August 2011

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

• Erastothenes created 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

Soramaki, Bech et al (2006)

Garrett, Mahadeva and Svirydenska (2011)

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

Payment System Simulator

Furfine algorithm 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

Data validation

Analysis and modeling Visualization

PlatformEasy to extend functionality, integration to corporate IT

Intuitive to use, flexible GUI, dashboard

ModulesModels for financial

stability, (agent-based) simulation,

visualization, …

Can be developed by third parties,

saves development time

SharingSame tool is shared

among several regulators leads to

robust models

Knowledge transfer over organizations

and time

Platform + modules + sharing

Current modules

NET – Network analysis, network metrics,Network operations

VIZ-HIGHCHARTS – Common chart visualizations

VIZ-PROTOVIS – Interactive network visualizations

DATA – Tools for working with large CSV files

MATCH – Algorithm for identifying overnight loans from payment data

FLOW – Interbank payment system simulator

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The network model

A1Source=V1Dest=V2Props…

A2Source=V2Dest=V3Props…

A3Source=V2Dest=V1Props…

Network 1 – N1Prop1=AbcProp2=Def…

V2Prop1=20Prop2=AbProp3=Bc

V3Prop1=20Prop2=AbProp3=Bc

V1Prop1=20Prop2=AbProp3=Bc

N2 Prop1=Aaa; Prop2=Bbb;…..

N3 Prop1=Aaa; Prop2=Bbb;…..

Time Series

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Explain screen

Screen elementsAccess via browser in intranet, internet

or desktop

Operation based on commands

Result panel shows command output

Submit commandEach command has

different parameters

And creates files (charts, data, etc)

Files and database connections are in

file panels

‘Visualize’ screen shows created

charts and layouts

Switch between ‘point-and-click’ and command line view

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Tabs allow multiple visualisations open

All visualisations are html documents that

work also outside FNA

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Dashboard (concept)The dashboard can combine multiple views to the data on a single screen

It can be available e.g. on the

intranet and updated daily

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All commands can be submitted using command syntax

Command line

All commands submitted (also from point-and-click) are

shown in history

History provides an easy way to make

new scripts for research or for the

dashboard

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Command line

Scripts can be run from the scripts panel or as regular jobs by

the server

www.fna.fi

(as from 29 August 2011)

Contact uskimmo@soramaki.net

FNA is available at

• 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

Technical details