Cyber Risk, Market Failures, and Financial Stability

By Emanuel Kopp, Lincoln Kaffenberger, Christopher Wilson

August 7, 2017

Preview Citation

Format: Chicago

Emanuel Kopp, Lincoln Kaffenberger, and Christopher Wilson. Cyber Risk, Market Failures, and Financial Stability, (USA: International Monetary Fund, 2017) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Cyber-attacks on financial institutions and financial market infrastructures are becoming more common and more sophisticated. Risk awareness has been increasing, firms actively manage cyber risk and invest in cybersecurity, and to some extent transfer and pool their risks through cyber liability insurance policies. This paper considers the properties of cyber risk, discusses why the private market can fail to provide the socially optimal level of cybersecurity, and explore how systemic cyber risk interacts with other financial stability risks. Furthermore, this study examines the current regulatory frameworks and supervisory approaches, and identifies information asymmetries and other inefficiencies that hamper the detection and management of systemic cyber risk. The paper concludes discussing policy measures that can increase the resilience of the financial system to systemic cyber risk.

Subject: Cyber risk, Economic sectors, Financial institutions, Financial regulation and supervision, Financial sector, Financial sector policy and analysis, Insurance, Operational risk, Systemic risk, Technology

Keywords: Breach customer security, Business model, Customer notification, Cyber insurance, Cyber regulation, Cyber risk, Cybersecurity provider, Cybersecurity risk, Data loss, Economic risk, Financial sector, Financial services firm, Financial system, Firms' customer, Firms visibility, Global, Information asymmetries, Insurance, Liability insurance, Market failure, Market risk shock, Operational risk, Preferred risk profile, Risk assessment, Risk management, Systemic risk, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/185
Stock No:

WPIEA2017185
ISBN:

9781484313787
ISSN:

1018-5941

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