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Cybersecurity and financial stability

Author

Listed:
  • Anand, Kartik
  • Duley, Chanelle
  • Gai, Prasanna

Abstract

Cyber attacks can impair banks operations and precipitate bank runs. When digital infrastructure is shared, banks defend themselves by investing in cybersecurity but can free-ride on the security measures of others. Ex ante free-riding by banks interacts with the ex post coordination frictions underpinning bank runs. While the temptation to free-ride induces underinvestment in cybersecurity, the prospect of a run encourages greater investment. System-wide cybersecurity is suboptimal and sensitive to rollover risk and bank heterogeneity. Regulatory measures, including negligence rules, liquidity regulation and cyber hygiene notices, facilitate constrained efficient cybersecurity investment. We suggest testable hypotheses to inform empirical work in this area.

Suggested Citation

  • Anand, Kartik & Duley, Chanelle & Gai, Prasanna, 2022. "Cybersecurity and financial stability," Discussion Papers 08/2022, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:082022
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    File URL: https://www.econstor.eu/bitstream/10419/251605/1/1796743046.pdf
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    References listed on IDEAS

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    Cited by:

    1. José Ramón Martínez Resano, 2022. "Digital resilience and financial stability. The quest for policy tools in the financial sector," Financial Stability Review, Banco de España, issue NOV.
    2. Rey, Hélène & Jamilov, Rustam & Tahoun, Ahmed, 2021. "The Anatomy of Cyber Risk," CEPR Discussion Papers 16217, C.E.P.R. Discussion Papers.
    3. José Ramón Martínez Resano, 2022. "Digital resilience and financial stability. The quest for policy tools in the financial sector," Financial Stability Review, Banco de España, issue Autumn.
    4. José Ramón Martínez Resano, 2022. "Digital resilience and financial stability. The quest for policy tools in the financial sector," Revista de Estabilidad Financiera, Banco de España, issue NOV.

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    More about this item

    Keywords

    cyber attacks; bank runs; global games; weaker-link public goods;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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