When It Rains, It Pours: Cyber Risk and Financial Conditions

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When It Rains, It Pours: Cyber Risk and Financial Conditions

Number 1022
June 2022 Revised August 2023

JEL classification: G12, G21, G28

Authors: Thomas M. Eisenbach, Anna Kovner, and Michael Junho Lee

We analyze how systemic cyber risk relates to the financial cycle and show that the potential impact of a cyber attack is systematically greater during stressed financial conditions. This is true over the past two decades and particularly at the onset of the COVID-19 pandemic, when changes in payment activity increased vulnerability by approximately 50 percent relative to the rest of 2020 through more concentration and intraday liquidity stress. We evaluate the effectiveness of policy interventions used to stabilize markets at mitigating cyber vulnerability. We argue that cyber and other financial shocks cannot be treated as uncorrelated vulnerabilities and policy solutions for cyber need to be calibrated for adverse financial conditions.

Available only in PDF

AUTHOR DISCLOSURE STATEMENT(S)

Thomas M. Eisenbach
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.

Anna Kovner
The author declares that she has no relevant or material financial interests that relate to the research described in this paper.

Michael Junho Lee
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.

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