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

    NGFS Seeks Public Feedback on Climate Risk Assessment Scenarios

    The Network for Greening the Financial System (NGFS) launched its first user feedback survey on climate scenarios, with the feedback period ending on February 27, 2023.

    February 06, 2023 WebPage Regulatory News

    EBA Launches Stress Tests for Banks, Issues Other Updates

    The European Banking Authority (EBA) launched the 2023 European Union (EU)-wide stress test, published annual reports on minimum requirement for own funds and eligible liabilities (MREL) and high earners with data as of December 2021.

    January 31, 2023 WebPage Regulatory News

    EBA Proposes Standards for IRRBB Reporting Under Basel Framework

    The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.

    January 31, 2023 WebPage Regulatory News

    FED Issues Further Details on Pilot Climate Scenario Analysis Exercise

    The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.

    January 17, 2023 WebPage Regulatory News

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.

    January 01, 2023 WebPage Regulatory News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.

    December 30, 2022 WebPage Regulatory News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.

    December 29, 2022 WebPage Regulatory News

    CBIRC Revises Measures on Corporate Governance Supervision

    The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.

    December 29, 2022 WebPage Regulatory News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8702