relevance of network effects are being taken into account. the market for credit default swaps ( cds ) has clearly revealed its systemic importance, as the default of one major counterparty has put the whole system under severe strain. therefore, i welcome very much that central counterparties for credit default swaps have been established to address first, the high degree of interconnectivity between cds markets and credit and cash securities markets, second, the high leverage embedded in these financial instruments, and third, the significant concentration of related risks in a small group of major market players. effective implementation of central clearing of derivatives enables a significant reduction in counterparty risk, hence addressing some of the negative externalities that stem from the over - the - counter network that has formed over the years. 4 interlinkages within the financial system are nothing fundamentally new. however, business strategies developed by financial institutions over the last 20 years and financial innovations have made the system much more interconnected, complex and opaque than it was in the past. i believe that policy - makers and regulators of today will be judged in the future on the basis of the regulatory measures and analytical tools they have applied to address the root causes see imf ( 2009 ), “ global financial stability report ”, chapter ii on assessing the systemic implications of financial linkages, april, and e. nier et al. ( 2007 ), “ network models and financial stability ”, journal of economic dynamics and control, vol. 31, pp. 2033 - 2060. see also ecb ( 2009 ), “ otc derivatives and post - trading infrastructures ”, september. of the crisis. a key challenge is to transcend a purely national or sector - specific perspective and to take an approach that matches the global nature of financial networks. a key prerequisite for network analysis as a surveillance tool remains, however, the availability of relevant data. this holds true especially on a cross - border basis, but also at bank level. going forward, regulators and overseers should continue to develop ways to systematically collect and analyse data. the crisis has clearly demonstrated that data confidentiality must not stand in the way of improvements in systemic risk analysis and assessment by policymakers. once more, i welcome you to this workshop and i wish you productive and enriching discussions on this very relevant topic.

gertrude tumpel - gugerell : recent advances in modelling systemic risk using network analysis introductory remarks by ms gertrude tumpel - gugerell, member of the executive board of the european central bank, at ecb workshop, frankfurt am main, 5 october 2009. * * * introduction ladies and gentlemen, i would like to welcome you to the workshop on “ recent advances in modelling systemic risk using network analysis ” here at the ecb. a workshop on systemic risk that provides an analytical focus on the financial sector as a network of financial agents could not come at a more timely moment. in 1896 the german sociologist georg simmel stated in his book “ the philosophy of money ” : “ money is the spider that spins society ’ s web ”. with this, simmel already at the time pointed to the network aspect of money, how financial innovation can transform the economy and society ; and the transformation process as changes in the complexity, size and nature of economic and societal networks. the recent financial crisis has strikingly illustrated the interconnectedness that characterises the global financial system. in providing a framework for strengthening financial stability, policy - makers are currently not only refining the regulatory and institutional set - up, but also looking for new analytical tools that help to better identify, monitor and address sources of systemic risk. therefore, i believe network analysis can make a relevant contribution and i am delighted that you have come together today to present and discuss new work in this field. let me give you three questions ( from the perspective of a policy - maker ) which today ’ s workshop would ideally shed light on : • what are the key channels and systemically important players that need special attention? • how can macro - prudential supervision take the interconnectedness into account? • and can network methodologies provide us with a useful tool in this respect? with these questions in mind, i have structured my introductory remarks into three parts. i will first give a short assessment of the relevance of systemic risk in the modern financial system. then i will discuss the use of network theories for the analysis of systemic risk. finally, i will briefly refer to network applications to payment and financial systems. 1. systemic risk in the modern financial system systemic risk refers to the possibility that a triggering event such as a bank failure or a market disruption could cause widespread disruption of the financial system, including significant difficulties in otherwise viable institutions or markets. preventing these negative externalities from impairing the functioning of the system and from spilling