Featured Product

    ESRB Publishes Report on Systemic Cyberattacks

    February 19, 2020

    ESRB published a report that explores systemic implications of cyber incidents, such as cyberattacks. The report summarizes the latest estimates of the costs of cyber incidents and shows that a cyber incident could evolve into a systemic cyber crisis that threatens financial stability. It also describes when an incident might turn into a “systemic cyber incident” that could threaten financial stability. Finally, the report outlines policy areas that merit further exploration, with the ESRB announcing that it intends to explore some of the potential systemic mitigants in its future work.

    The report highlights that cyber risk is characterized by three features that, when combined, make it fundamentally different from other sources of operational risk: the speed of its propagation, the scale of its propagation, and the potential intent of perpetrators. ESRB has developed an analytical framework to assess how cyber risk can become a source of systemic risk to the financial system. The four stages of this conceptual model (context, shock, amplification, systemic event) facilitate a systematic analysis of how a cyber incident can grow from operational disruption into a systemic crisis. The framework could assist in analyzing systemic vulnerabilities that amplify the shock of a cyber incident and in understanding at which point a cyber incident may become systemic. ESRB also surveyed its membership to form a view on common individual vulnerabilities across ESRB jurisdictions. Combining these elements, ESRB has considered a number of historical and hypothetical scenarios. It used these scenarios to try to understand the distinction between severe operational disruption to the financial system and a systemic crisis.

    The ESRB analysis illustrates how a cyber incident could, under certain circumstances, rapidly escalate from an operational outage to a liquidity crisis. Standard-setting bodies, national and international authorities, and industry groups are combining their efforts to mitigate cyber risks. To further mitigate the risk of a systemic cyber incident materializing, more work is required to address system vulnerabilities and reduce the potential for widespread disruption through amplification channels. The scenario analysis in this report reveals that the loss of confidence in the financial system plays a key role in a cyber incident developing into a systemic crisis. The following are a number of policy areas that merit further exploration:

    • Given the speed and scale at which such a cyber incident may unfold, rapid coordination between stakeholders and a consistent and clear communication from authorities may be required to shore up confidence. Different ongoing workstreams could be leveraged to achieve this goal.
    • Effective restoration of key economic functions requires planning, including agreeing on a clear division of tasks between industry and authorities and between (technical) incident management and (financial) consequence management. This may also include reflections on central bank emergency communications, interventions, or assistance when a cyber crisis becomes a financial stability crisis.
    • Cyber-equivalent of capital buffers is preparedness and resilience. Thus, the operationalization of systemic resilience mechanisms such as data vaulting, among other things, merits further exploration. This is of particular importance as many recovery and resolution plans are contingent on the essential data being available or recoverable.

    ESRB intends to explore some of the potential systemic mitigants in future work. Taking stock of the findings in this report, ESRB intends to leverage its broad institutional composition and network to evaluate the costs and benefits of different systemic mitigants going forward.

     

    Related Links

    Keywords: Europe, EU, Banking, Insurance, Securities, Cyber Risk, Systemic Risk, Operational Risk, Financial Stability, ESRB

    Featured Experts
    Related Articles
    News

    HKMA on Fintech Adoption and Innovation by Banks in Hong Kong

    HKMA announced the publication of a report on fintech adoption and innovation in the banking industry in Hong Kong.

    May 20, 2020 WebPage Regulatory News
    News

    BIS on Impact of Increasing Use of Cloud Technology on Cyber Risk

    BIS published a working paper that examines the drivers of cyber risk, especially in context of the cloud services.

    May 20, 2020 WebPage Regulatory News
    News

    ECB Consults on Guide for Managing Climate and Environmental Risks

    ECB launched consultation on a guide specifying how the Banking Supervision expects banks to consider climate-related and environmental risks in their governance and risk management frameworks and when formulating and implementing their business strategy.

    May 20, 2020 WebPage Regulatory News
    News

    ECB Issues Opinion on Revisions to CRR in Response to COVID Crisis

    ECB published an opinion (CON/2020/16) on amendments to the prudential framework in EU in response to the COVID-19 pandemic.

    May 20, 2020 WebPage Regulatory News
    News

    EBA Assesses Interlinkages Between Recovery and Resolution Planning

    EBA published a report that examines the interlinkages between recovery and resolution planning under the Bank Recovery and Resolution Directive (BRRD).

    May 20, 2020 WebPage Regulatory News
    News

    SRB Publishes Final MREL Policy Under the Banking Package

    SRB published the final Minimum Requirements for Own Funds and Eligible Liabilities (MREL) policy under the Banking Package.

    May 20, 2020 WebPage Regulatory News
    News

    US Agencies Amend Interim Final Rule on Transition Period for CECL

    US Agencies (FDIC, FED, and OCC) published a final rule that makes technical changes to the March 31, 2020 interim final rule that provides a five-year transition period for the impact of the current expected credit loss (CECL) methodology on regulatory capital.

    May 19, 2020 WebPage Regulatory News
    News

    ECB Releases Results of March Survey on Credit Terms and Conditions

    ECB published results of the March 2020 survey on credit terms and conditions in euro-denominated securities financing and over-the-counter (OTC) derivatives markets.

    May 19, 2020 WebPage Regulatory News
    News

    FINMA Adjusts Deadlines for COVID-19 Relief Measures for Banks

    FINMA published guidance (06/2020) on extending or discontinuing various exemptions that were granted due to the COVID-19 crisis.

    May 19, 2020 WebPage Regulatory News
    News

    SRB Consults on Standardized Data Set for Bank Valuation in Resolution

    SRB launched a consultation on the minimum data needed for valuation of a bank in resolution.

    May 19, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5203