An attack on any of the five most active U.S. banks would have a ripple effect throughout the entire banking system, causing disruptions in the financial sector and affecting a third of all assets, according to a study by the Federal Reserve Bank of New York.
The financial sector is a prime target for hackers, whether they are individuals looking to compromise a system or an ATP (advanced persistent threat) group working for a government. Because there is such a significant interest in attacking financial institutions, the regulations governing these organizations enforce much higher standards.
The study explains what problems a cyber event will cause, and it vastly depends on the type of attack. But more importantly, it’s about what the hackers want to achieve with their actions, and their goals can be classified into three categories.
Attackers might want to compromise data confidentiality, which usually includes social security numbers or records pertaining to back clients, which is considered proprietary data. Any loss of private data would incur reputational costs that would be difficult to recover.
Another issue that immediately impacts a bank’s ability to serve customers or perform its day-to-day operations is availability. Attacks can range from non-intrusive methods such as DDoS (distributed denial-of-service), which can be more easily dispersed, to ransomware, which can shut down a company for weeks.
The last problem is integrity. At worst, an attacker might corrupt essential files and systems within the banking system. The costs of resolving such issues are difficult to quantify. It usually spills into availability, not to mention the reputation of the institution suffers.
Concrete Effects of a Cyber Attack
If any of the above criteria are met for a cyberattack, the study outlines the likely ripple effect inside the baking system. The immediate impact is the propagation of solvency and liquidity shocks. In turn, it can also trigger contagion events, such as a virus or technical exploit, which can disseminate through data and communications networks.
Depending on the type of attack and bank procedures, a cyberattack can be followed by what’s called liquidity hoarding. The financial institution proactively stops payments. If one of the five most active U.S. banks does this, the effect is all the more significant.
“We estimate that the impairment of any of the five most active U.S. banks will result in significant spillovers to other banks, with 38 percent of the network affected on average,” concludes the study.
“When banks respond to uncertainty by liquidity hoarding, the potential impact in forgone payment activity is dramatic, reaching more than 2.5 times daily GDP. In a reverse stress test, interruptions originating from banks with less than $10 billion in assets are sufficient to impair a significant amount of the system.”
Attacks on the banking system, even if it affects a single large institution, can impact the entire industry. The same problem can be experienced if multiple smaller or medium banks suffer from a cyberattack, sending a shockwave through the network.
Silviu is a seasoned writer who followed the technology world for almost two decades, covering topics ranging from software to hardware and everything in between. He's passionate about security and the way it shapes the world, in all aspects of life. He's also a space geek, enjoying all the exciting new things the Universe has to offer.View all posts
June 02, 2023
Don’t miss out on exclusive content and exciting announcements!