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Cyber risk as a threat to financial stability

Author

Listed:
  • Francisco José Herrera Luque
  • José Munera López
  • Paul Williams

Abstract

Information systems play a critical role in the functioning of financial institutions. While supporting their services and enabling their strategies, underlying vulnerabilities could pose an important source of risk: cyber risk. This may impair financial institutions’ operational capabilities and even threaten their viability. Furthermore, the high level of interconnection and interdependence between the elements of the financial system allows for the contagion of cyber risk among them. Consequently, the materialization of cyber risk in its most extreme form could threaten the stability of the financial system. To address this topic, the article first introduces cyber incidents and their estimated costs, focusing on the financial system. Cyber risk is then considered, together with the main vulnerabilities and threats to cyber security affecting financial institutions. This is followed by a justification of the potential systemic effect of cyber risk on the financial system, supported by the use of theoretical models. Moreover, highlights of the current regulatory framework on cyber risk for financial institutions operating in Spain are also presented. Finally, recommended future lines of work for the improvement of the management of cyber risk in the financial system are discussed.

Suggested Citation

  • Francisco José Herrera Luque & José Munera López & Paul Williams, 2021. "Cyber risk as a threat to financial stability," Financial Stability Review, Banco de España, issue Spring.
    • Handle: RePEc:bde:revisl:y:2021:i:5:n:7
    Note: 40
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    File URL: https://www.bde.es/f/webbde/Secciones/Publicaciones/InformesBoletinesRevistas/InformesEstabilidadFinancera/21/7_Cyber_FSR.pdf
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    References listed on IDEAS

    as
    1. Anil K. Kashyap & Anne Wetherilt, 2019. "Some Principles for Regulating Cyber Risk," AEA Papers and Proceedings, American Economic Association, vol. 109, pages 482-487, May.
    2. Emanuel Kopp & Lincoln Kaffenberger & Christopher Wilson, 2017. "Cyber Risk, Market Failures, and Financial Stability," IMF Working Papers 2017/185, International Monetary Fund.
    3. Joseph Goh & Mr. Heedon Kang & Zhi Xing Koh & Jin Way Lim & Cheng Wei Ng & Galen Sher & Chris Yao, 2020. "Cyber Risk Surveillance: A Case Study of Singapore," IMF Working Papers 2020/028, International Monetary Fund.
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    Cited by:

    1. Cristina Andriani & Lorenzo Bencivelli & Antonio Castellucci & Mauro De Santis & Sabina Marchetti & Giovanna Piantanida, 2024. "The quantum challenge: implications and strategies for a secure financial system," Questioni di Economia e Finanza (Occasional Papers) 877, Bank of Italy, Economic Research and International Relations Area.

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