Cyberattacks, Banking Stability and the Value of Supervisory Strictness 

Abstract

We exploit cyberattacks to examine the value of supervisory strictness for banking stability. During the 2023 banking crisis, stocks of banks that were subject to cyberattacks before the crisis performed better, consistent with their lower exposure to the vulnerabilities that amplified the banking turmoil. Our evidence suggests that financial supervisors are stricter with attacked banks. In turn, these banks adopt more prudent strategies before the crisis, making them more resilient during the 2023 episode. The novelty of our setting lies in linking increased supervisory strictness induced by cyber risk to its value during a crisis. Consistent with our interpretation, we find no similar effect during the COVID-19 crisis or the 2008 Global Financial Crisis, as the former was unrelated to bank fundamentals and the latter preceded the rise of cybersecurity as a regulatory priority. Overall, our results are consistent with higher supervisory strictness induced by cyberattacks strengthening bank stability in times of distress.

Keywords: Banking Crisis, Supervision, Cyberattacks, Banking Stability, Risk-Taking