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Disciplining digital risk: evidence from cyber stress tests

Author

Listed:
  • Abidi, Nordine
  • Gambacorta, Leonardo
  • Kok, Christoffer
  • Miquel-Flores, Ixart
  • Madio, Leonardo
  • Partida, Alberto

Abstract

Investment in cybersecurity in an interconnected banking system has public-good proper- ties: positive externalities can generate systemic underinvestment. Using confidential supervi- sory data from the European Central Bank, we first identify “laggard” European banks that underinvest relative to their cyber-risk profiles, and then examine how supervisory scrutiny af- fects their incentives to invest. We exploit the 2024 ECB Cyber Resilience Stress Test (CyRST) as a quasi-natural experiment. In a difference-in-differences design, we find that following the CyRST announcement, laggard banks increased cybersecurity investment by about 80% rel- ative to their peers. The response is stronger among laggards subject to high-intensity su- pervisory oversight, consistent with scrutiny exerting a disciplining effect. Overall, the results suggest that targeted supervisory scrutiny may help mitigate underinvestment incentives and strengthen banks’ operational risk management. JEL Classification: G21, G28, G32, L86, K23

Suggested Citation

  • Abidi, Nordine & Gambacorta, Leonardo & Kok, Christoffer & Miquel-Flores, Ixart & Madio, Leonardo & Partida, Alberto, 2026. "Disciplining digital risk: evidence from cyber stress tests," Working Paper Series 3222, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20263222
    Note: 1847506
    as

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    JEL classification:

    • 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
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law

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