#3: Cyber Risk and Its Impact on Financial Stability

Suptech Broadcast

24 Nov

1st December 2022

With:

| Patricia C Mosser (Columbia University)

| Jason Healey (CIA)

In Session #3, Patricia C. Mosser (Columbia SIPA) and Jason Healey (Columbia SIPA / CISA) join FNA to dissect the "Project on Cyber Risk to Financial Stability." While traditional financial shocks (like credit or market risk) are well-understood, cyber risk introduces a new level of unpredictability. Our guests argue that the speed and "active" nature of cyber threats can bypass traditional dampeners, turning a localized operational failure into a systemic liquidity freeze.

The discussion centers on the Transmission Channels of cyber risk—specifically how a disruption at a single systemic node (like a major clearinghouse or messaging system) can lead to a "Liquidity Sink." Mosser and Healey highlight the "Amplifiers" of this risk, such as extreme interconnectedness and the erosion of public trust, while offering a blueprint for how Suptech can provide the real-time "Threat Maps" needed to safeguard the financial system and future CBDC architectures.

Key Discussion Points:

Transmission Channels: Understanding how cyber shocks move from the operational layer (system outages) to the financial layer (liquidity hoarding) and finally to the systemic layer (loss of confidence).
Amplifiers vs. Dampeners: Analyzing factors like concentration risk and high-frequency trading that speed up contagion, versus the role of central bank "liquidity dikes" in containing a crisis.
The CBDC Security Paradox: Why the centralized nature of some CBDC designs creates a "honey pot" for state actors and the need for privacy-preserving cryptographic tools like zero-knowledge proofs.
Cyber-Specific Stress Testing: Moving beyond static scenarios to dynamic "Red Teaming" that accounts for the adaptive behavior of human adversaries.
Suptech for Resilience: How regulators can use automated data feeds and network analytics to monitor the "digital heartbeat" of the financial system in real-time.
Policy Coordination: The urgent need for "Cyber-Financial" collaboration between national security agencies and central bank supervisors.

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