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Risk Indicators for Financial Market Infrastructure: From High Frequency Transaction Data to a Traffic Light Signal

38 Pages Posted: 13 Jun 2017  

Ron Berndsen

De Nederlandsche Bank

Ronald Heijmans

De Nederlandsche Bank

Date Written: June 9, 2017

Abstract

This paper identifies quantitative risks in financial market infrastructures (FMIs), which are inspired by the Principles for Financial Market Infrastructures. We convert transaction level data into indicators that provide information on operational risk, changes in the network structure and interdependencies. As a proof of concept we use TARGET2 level data. The indicators are based on legislation, guidelines and their own history. Indicators that are based on their own history are corrected for cyclical patterns. We also define a method for setting the signaling threshold of relevant changes. For the signaling, we opt for a traffic light approach: a green, yellow or red light for a small, moderate or substantial change in the indicator, respectively. The indicators developed in this paper can be used by overseers and operators of FMIs and by financial stability experts.

Keywords: risk indicator, central bank, granular data, TARGET2, oversight, financial stability, forecasting

JEL Classification: E42, E50, E58, E59

Suggested Citation

Berndsen, Ron and Heijmans, Ronald, Risk Indicators for Financial Market Infrastructure: From High Frequency Transaction Data to a Traffic Light Signal (June 9, 2017). De Nederlandsche Bank Working Paper No. 557. Available at SSRN: https://ssrn.com/abstract=2985412

Ron Berndsen

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Ronald Heijmans (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

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