When It Rains, It Pours: Cyber Risk and Financial Conditions

22 Pages Posted: 1 Jul 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: June 2022

Abstract

We analyze how systemic cyber risk in the wholesale payments network relates to adverse financial conditions. We show that at the onset of the COVID-19 pandemic, payment activity increased, became more concentrated, and showed intraday liquidity stress. Cyber vulnerability was elevated in late February and early March 2020, with the potential impact of a cyberattack about 40 percent greater than in the remainder of 2020. Policy interventions to stabilize markets mitigated cyber vulnerability, particularly corresponding to large increases in aggregate reserves. We observe that cyber vulnerability and other financial shocks cannot be treated as uncorrelated risks and policy solutions for cyber security need to be calibrated for adverse financial conditions.

Keywords: cyber, banks, networks, payments, COVID-19

JEL Classification: G12, G21, G28

Suggested Citation

Eisenbach, Thomas M. and Kovner, Anna and Lee, Michael, When It Rains, It Pours: Cyber Risk and Financial Conditions (June 2022). FRB of New York Staff Report No. 1022, 2022, Available at SSRN: https://ssrn.com/abstract=4151022 or http://dx.doi.org/10.2139/ssrn.4151022

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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