Cyber Attacks On Banks Could Trigger Financial Crisis

The head of the European Central Bank (ECB) has warned that a combined cyber-attack on important banks could trigger financial crisis and instability.

The financial system has so far weathered larger-scale cyber-attacks, but some now argue that the system has not been properly tested for a systemic cyber-attack. As the connection between cyberspace and the real economy intensifies, amid widely expected further increases in interdependency, interconnectivity, and complexity, the probability that an external shock will affect the financial system and become a systemic event increases.

Christine Lagarde (pictured), the ECB’s president, said that a report by the European Systemic Risk Board (ESRB) estimates the global cost of cyber-attacks at between $45bn and $654bn. “As an operator of critical infrastructures, the ECB obviously takes such threats very seriously,” she said earlier this moneth, adding that there are several “plausible channels” through which a cyber-attack could morph into a serious financial crisis. One such channel might be an operational outage that destroyed or encrypted the balance accounts of a major financial institution could trigger a liquidity crisis. 

The report by the ESRB, which was set up by the European Commission, will look how a cyber incident could, under certain circumstances, rapidly escalate from an operational outage to a liquidity crisis.

It will say that in common with historical financial crises this liquidity crisis could, in certain circumstances, lead to a systemic crisis. At its most recent board meeting the ESRB revealed that it had identified cyber warfare as a source of risk to the financial system.

Last year, the G7 announced a joint cross-border crisis management exercise on a cyber incident affecting the financial system that it carried out in June 2019, saying that cyber risks were increasing and posed a “genuine and growing threat” to the stability and integrity of the financial sector. It was the first exercise of its kind to be organised by finance ministries, central banks, regulators and financial market authorities. It did not reveal the results but the G7 asked its Cyber Experts Group to review financial regulation, and to look at whether the impacts could be measured better. The Trump administration is expected to take up the issue when it assumes the G7 presidency this year.

In her speech, the ECB’s president also said it needed to look the risks and opportunities of issuing central bank digital currencies to respond to changing consumer demand and to strengthen Europe’s place in the world.

Last month, the Bank of England announced it would work with the ECB and the central banks of Canada, Japan, Sweden and Switzerland to share experiences as they assess the potential cases for central bank digital currency (CBDC). Central banks have accelerated their work on digital currencies after Facebook unveiled plans to introduce its Libra cryptocurrency and China said it was developing a digital currency.

Jake Moore, cybersecurity expert at ESET, said: “The recent Travelex ransomware attack highlighted the ease at which taking out one organisation can, in fact, knock on into other companies. “There will always be a cyber-risk posed to the financial industry due to the vast amounts at stake, but this risk is managed to the highest capacity." he said.  

"When companies work together to build more robust defenses we see the potential risk lowered and the best outcomes." 
 

Carnegie Endowment:       ECB Europa:       InfoSecurity Magazine:          Independent:       Image: WEF 

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