Cyber Risk Threatens Macro-Financial Stability

The International Monetary Fund (IMF) has issued a warning about the growing threat of cyber risk to macro-financial stability in its latest Global Financial Stability Report.

The Staggering Potential Losses

According to IMF staff calculations, the potential losses due to cyber incidents are substantial. Not only do direct losses occur, but indirect losses such as reputational damage leading to a loss of customers or investor confidence may not be fully reflected in financial statements.

Factors Contributing to Cyber Incidents

The report highlights that firms with larger assets and higher leverage are more likely to experience cyber incidents. Conversely, firms with higher capital expenditures and return on assets (ROA) tend to invest more in cybersecurity, which could mitigate their risk exposure.

Drivers of Cyber Incidents

To better understand the drivers of cyber incidents, a probit regression model was employed, examining the impact of various firm characteristics on the likelihood of experiencing a cyber incident. The results indicate that:

• Firms with larger total assets are more likely to experience cyber incidents
• Firms with a higher share of asset intangibility are more likely to experience cyber incidents
• Firms with lower leverage are more likely to experience cyber incidents

Impact on Equity Prices

The report also sheds light on the impact of cyber incidents on equity prices. Using data from Advisen Cyber Loss Data and Capital IQ, the IMF found that:

• Malicious events have a significant negative impact on equity prices
• Non-malicious events have a smaller but still statistically significant effect on equity prices
• Larger firms tend to experience more severe impacts from cyber incidents

Conclusion

In conclusion, the IMF’s Global Financial Stability Report underscores the growing concern of cyber risk for macro-financial stability. The report highlights the need for policymakers and financial institutions to prioritize cybersecurity and invest in measures to mitigate the risks associated with cyber incidents.

As the world becomes increasingly dependent on digital infrastructure, it is crucial that we stay vigilant and proactive in addressing the threats posed by cyber attacks. The IMF’s findings serve as a wake-up call for all stakeholders to recognize the gravity of this issue and take necessary steps to ensure the stability of our financial systems.

Source

International Monetary Fund (IMF), Global Financial Stability Report, April 2024