Featured Product

    ESRB Presents Conceptual Model for Systemic Cyber Risk

    May 14, 2020

    ESRB is presenting a conceptual model for systemic cyber risk in the financial sector. One of the goals is to provide a structured approach that can be used to describe cyber incidents, from genesis to a potential systemic event. Building on this conceptual model, future work could be undertaken to study the efficacy of individual systemic mitigants; use quantitative or data-driven methods to more accurately express each phase of amplification; or further study the interaction and measurement of impact at institutional and aggregate-system levels.

    The model aims to demonstrate the link between the crystallization of cyber risk in a firm-specific context (portraying micro-prudential concerns) and the possible ramifications for the financial system (applying a macro-prudential focus). Another aim of the model is to identify system-wide vulnerabilities and the unique characteristics of cyber incidents that can act as amplifiers, thus propagating shocks through the financial system. The aim is also to support the use of historical or theoretical scenario-based analysis to demonstrate the viability of the model and suggest system-wide interventions that could act as systemic mitigants. Although the model is geared toward disruption arising from cyber incidents, it can also be used for any source of operational disruption (although some elements of the model may be less relevant).

    To deconstruct and describe the macro-financial implications of operational and cyber risks, the systemic cyber risk model is split into four distinct phases: context, shock, amplification, and systemic event. The context phase is useful for scenario design, but is not essential for assessing systemic vulnerabilities or relevant mitigants. It is possible to adopt a cause-agnostic approach, which ignores the circumstances of disruption and focuses solely on impact. From a micro-prudential perspective, it is important to maintain a dual focus on both idiosyncratic individual vulnerabilities and Common Individual Vulnerabilities. Measuring impact is challenging and remains primarily a judgment-based, qualitative approach. Although some quantitative indicators exist, they should be used to complement and inform impact assessments.

    With regard to policy considerations arising from the model, a systemic event arising from a cyber incident is conceivable. Cyber incidents resulting in near-systemic consequences have occurred, in circumstances that can be described as “severe, but plausible.” However, a truly systemic event would require an alignment of amplifiers and a lack of effective systemic mitigants that would be “extreme, but existential” in nature. A cyber incident that causes only operational-to-operational contagion may have system-wide impact. However, the current base of evidence suggests that a systemic event requires the confidence and/or financial contagion channels to be triggered. 

     

    Related Link: Conceptual Model for Systemic Risk (PDF)

    Keywords: Europe, EU, Banking, Cyber Risk, Systemic Risk, Operational Risk, Scenario-based Analysis, Historical Event Analysis, Basel, ESRB

    Featured Experts
    Related Articles
    News

    EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models

    The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.

    June 21, 2022 WebPage Regulatory News
    News

    EP Reaches Agreement on Corporate Sustainability Reporting Directive

    The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).

    June 21, 2022 WebPage Regulatory News
    News

    PRA Consults on Model Risk Management Principles for Banks

    The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.

    June 21, 2022 WebPage Regulatory News
    News

    EC Regulation Amends Standards for Calculating Credit Risk Adjustments

    The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.

    June 21, 2022 WebPage Regulatory News
    News

    BIS Hub Updates Work Program for 2022, Announces New Projects

    The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.

    June 17, 2022 WebPage Regulatory News
    News

    EIOPA Issues Cyber Underwriting Proposal, Statement on Open Insurance

    The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.

    June 17, 2022 WebPage Regulatory News
    News

    US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule

    Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)

    June 16, 2022 WebPage Regulatory News
    News

    EIOPA Consults on Review of Securitization Framework in Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.

    June 16, 2022 WebPage Regulatory News
    News

    UK Authorities Issue Regulatory and Reporting Updates for Banks

    The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.

    June 15, 2022 WebPage Regulatory News
    News

    BCBS Issues Climate Risk Principles while HKMA Expresses Its Support

    The Basel Committee on Banking Supervision (BCBS) issued principles for the effective management and supervision of climate-related financial risks.

    June 15, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8280