Cybersecurity and Bank Distance-to-Default

Yuna Heo
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Yuna Heo: University of Basel - Faculty of Business and Economics; Swiss Finance Institute

No 25-69, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: This study investigates the impact of cybersecurity risk on bank fragility. By utilizing a novel bank-specific indicator of cybersecurity, we find that an increase in cybersecurity risk raises the probability of bank default. The effect is larger for banks facing deposit withdrawal, but less pronounced for banks with ample liquidity buffers. Further we show that data security laws can help reduce the potential fragility in banking; nonetheless, the influence of cybersecurity risk remains significant. Our findings provide suggestive evidence that cybersecurity risk exacerbates financial instability, but implementing adaptation policies can strengthen resilience against possible cyberattacks.

Keywords: cybersecurity; cyber risk; financial stability; distance-to-default; bank default probability; systemic risk; bank fragility; cyberattacks; data breaches (search for similar items in EconPapers)
JEL-codes: G15 G32 G38 Q54 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2025-08
New Economics Papers: this item is included in nep-pay and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2569

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