NY Fed Reveals Implications of Cyberattack on US Financial System

A “pre-mortem analysis” sheds light on the potential destruction of a cyberattack against major US banks.

A cyberattack compromising the integrity of US financial systems could lead to an “unprecedented” reconciliation and recuperation process, bank analysts predict in new research published this week from the Federal Reserve Bank of New York.

As part of a “pre-mortem analysis,” Thomas Eisenback, Anna Kovner, and Michael Junho Lee analyzed the potential consequences if a cyberattack harmed banks’ ability to send payments between one another. They estimate the impairment of any of the five most active US banks could lead to “significant spillovers” to other banks and affect 38% of the network on average. These top banks account for close to half of total payments, the top 10 for more than 60%.

“A cyber attack on any of the most active U.S. banks that impairs any of those banks’ ability to send payments would likely be amplified to affect the liquidity of many other banks in the system,” the analysts write. If banks respond strategically — which is likely, if there is uncertainty surrounding the incident — the extent of amplification would be even greater, they explain.

To arrive at these findings, the analysts considered how an attack on multiple banks may interfere with payment activity in the Fedwire Funds Service, which represents the majority of wholesale payments between financial institutions in the US. They chose to analyze Fedwire given how high-value payment systems could appeal to an attacker who is eager to cause widespread economic damage.

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