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Shallow or deep? Detecting anomalous flows in the Canadian Automated Clearing and Settlement System using an autoencoder

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  • Leonard Sabetti
  • Ronald Heijmans

Abstract

Financial market infrastructures and their participants play a crucial role in the economy. Financial or operational challenges faced by one participant can have contagion effects and pose risks to the broader financial system. Our paper applies (deep) neural networks (autoencoder) to detect anomalous flows from payments data in the Canadian Automated Clearing and Settlement System (ACSS) similar to Triepels et al. (2018). We evaluate several neural network architecture setups based on the size and number of hidden layers, as well as differing activation functions dependent on how the input data was normalized. As the Canadian financial system has not faced bank runs in recent memory, we train the models on Å“normal data and evaluate out-of-sample using test data based on historical anomalies as well as simulated bank runs. Our out-of-sample simulations demonstrate the autoencoders performance in different scenarios, and results suggest that the autoencoder detects anomalous payment flows reasonably well. Our work highlights the challenges and trade-offs in employing a workhorse deep-learning model in an operational context and raises policy questions around how such outlier signals can be used by the system operator in complying with the prominent payment systems guidelines and by financial stability experts in assessing the impact on the financial system of a financial institution that shows extreme behaviour.Â

Suggested Citation

  • Leonard Sabetti & Ronald Heijmans, 2020. "Shallow or deep? Detecting anomalous flows in the Canadian Automated Clearing and Settlement System using an autoencoder," Working Papers 681, DNB.
  • Handle: RePEc:dnb:dnbwpp:681
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    References listed on IDEAS

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    1. Chakraborty, Chiranjit & Joseph, Andreas, 2017. "Machine learning at central banks," Bank of England working papers 674, Bank of England.
    2. Avdjiev, S. & Giudici, P. & Spelta, A., 2019. "Measuring contagion risk in international banking," Journal of Financial Stability, Elsevier, vol. 42(C), pages 36-51.
    3. Ronald Heijmans & Richard Heuver, 2011. "Is this bank ill? The diagnosis of doctor TARGET2," DNB Working Papers 316, Netherlands Central Bank, Research Department.
    4. Li, Fuchun & Perez-Saiz, Hector, 2018. "Measuring systemic risk across financial market infrastructures," Journal of Financial Stability, Elsevier, vol. 34(C), pages 1-11.
    5. Beutel, Johannes & List, Sophia & von Schweinitz, Gregor, 2019. "Does machine learning help us predict banking crises?," Journal of Financial Stability, Elsevier, vol. 45(C).
    6. Fuchun Li & Héctor Pérez Saiz, 2016. "Measuring Systemic Risk Across Financial Market Infrastructures," Staff Working Papers 16-10, Bank of Canada.
    7. Richard Heuver & Ron TriepelsTriepels, 2019. "Liquidity stress detection in the European banking sector," DNB Working Papers 642, Netherlands Central Bank, Research Department.
    8. Boyd, John H. & De Nicolò, Gianni & Rodionova, Tatiana, 2019. "Banking crises and crisis dating: Disentangling shocks and policy responses," Journal of Financial Stability, Elsevier, vol. 41(C), pages 45-54.
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    Cited by:

    1. Rubio, Jeniffer & Barucca, Paolo & Gage, Gerardo & Arroyo, John & Morales-Resendiz, Raúl, 2020. "Classifying payment patterns with artificial neural networks: An autoencoder approach," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 1(1).
    2. León, Carlos & Barucca, Paolo & Acero, Oscar & Gage, Gerardo & Ortega, Fabio, 2020. "Pattern recognition of financial institutions’ payment behavior," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 1(1).

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    More about this item

    Keywords

    Anomaly Detection; Autoencoder; Neural Network; Articial intelligence; ACSS; Financial Market Infrastructure; Retail Payments;
    All these keywords.

    JEL classification:

    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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