Fully operating financial markets are a necessary condition for a flourishing economy, growth and prosperity. They allocate capital to productive and innovative projects and, thus, increase overall economic welfare. The last decade has shown, however, that false developments on financial markets, a poorly designed financial system, entail unimagined risks for the economy, the society and the state.
The recent financial crisis has raised serious doubts about the self-stabilizing powers of financial markets. At the same time, societies and governments are confronted with pressing problems – such as the demographic change – for whose solution operative and innovative financial markets and institutions are indispensible. Therefore, the instability of the financial system is one of the greatest challenges for the present economic policy.
The Leibniz Institute for Financial Research SAFE analyzes the requirements for an optimal framework – a “sustainable architecture” – for financial markets and their agents. Because of the dynamic interplay of state regulation and market adjustments such a framework needs to be examined and improved continuously. This way, we will be able to, on the one hand, guarantee high stability and, on the other hand, stimulate the willingness and ability for innovation and competition.
The increasing complexity of financial markets leads to the conviction that only systematic academic approach can provide solutions. Traditional research on financial markets focuses on individual agents and issues. SAFE aggregates this knowledge of what happens on different markets not only within the traditional research areas of financial economics but also across these areas – for example to better understand systemic risks. With its comprehensive approach, SAFE aims to contribute to a prudent – because informed – policy design.
SAFE focuses on Europe because Europe is lagging behind the U.S. with respect to research, knowledge transfer and policy advice in the area of financial markets. Financial research today includes European institutions only insufficiently. One reason for this is a shortage of European data. By creating a Data Center, that not only collects existing data but also creates new German and European data sets, SAFE is going to overcome this shortage. Its Policy Center aims at creating and maintaining a continuous dialogue with high-ranking policy makers in Germany and Europe in order to contribute, based on state-of-the-art research, to a sustainable development of financial markets, oriented on stability and growth.