Cybersecurity and financial stability

Kartik Anand, Chanelle Duley and Prasanna Gai

No 08/2022, Discussion Papers from Deutsche Bundesbank

Abstract: Cyber attacks can impair banks operations and precipitate bank runs. When digital infrastructure is shared, banks defend themselves by investing in cybersecurity but can free-ride on the security measures of others. Ex ante free-riding by banks interacts with the ex post coordination frictions underpinning bank runs. While the temptation to free-ride induces underinvestment in cybersecurity, the prospect of a run encourages greater investment. System-wide cybersecurity is suboptimal and sensitive to rollover risk and bank heterogeneity. Regulatory measures, including negligence rules, liquidity regulation and cyber hygiene notices, facilitate constrained efficient cybersecurity investment. We suggest testable hypotheses to inform empirical work in this area.

Keywords: cyber attacks; bank runs; global games; weaker-link public goods (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 H41 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-ban, nep-cba, nep-gth and nep-isf
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/251605/1/1796743046.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:082022

Access Statistics for this paper

More papers in Discussion Papers from Deutsche Bundesbank Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().