Cyber Risk and the U.S. Financial System: A Pre-Mortem Analysis

50 Pages Posted: 23 Jan 2020 Last revised: 27 Apr 2022

See all articles by Thomas M. Eisenbach

Thomas M. Eisenbach

Federal Reserve Bank of New York

Anna Kovner

Federal Reserve Bank of New York

Michael Lee

Federal Reserve Banks - Federal Reserve Bank of New York

Date Written: January 1, 2020

Abstract

We model how a cyber attack may be amplified through the U.S. financial system, focusing on the wholesale payments network. We estimate that the impairment of any of the five most active U.S. banks will result in significant spillovers to other banks, with 38 percent of the network affected on average. The impact varies and can be larger on particular days and geographies. When banks respond to uncertainty by liquidity hoarding, the potential impact in forgone payment activity is dramatic, reaching more than 2.5 times daily GDP. In a reverse stress test, interruptions originating from banks with less than $10 billion in assets are sufficient to impair a significant amount of the system. Additional risk emerges from third party providers, which connect otherwise unrelated banks, and from financial market utilities.

Keywords: cyber, banks, networks, payments

JEL Classification: G12, G21, G28

Suggested Citation

Eisenbach, Thomas M. and Kovner, Anna and Lee, Michael, Cyber Risk and the U.S. Financial System: A Pre-Mortem Analysis (January 1, 2020). FRB of New York Staff Report No. 909, January 2020, Rev. May 2021, Available at SSRN: https://ssrn.com/abstract=3522710 or http://dx.doi.org/10.2139/ssrn.3522710

Thomas M. Eisenbach (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-6089 (Phone)

HOME PAGE: http://teisenbach.github.io/

Anna Kovner

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Michael Lee

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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