The US Federal Reserve Bank of New York’s biggest financial stability worries are possible cyberattacks on the banking system and the migration of assets from banks to the less-regulated shadow-banking sector, President John Williams said. The Fed is trying to prepare for these kinds of attacks in part because cyber threats and systemic risks are intertwined, he said.
In January, before the pandemic started ravaging the US economy, New York Fed researchers looked at the potential impact of a cyberattack that harmed banks’ ability to process payments between each other. The paper also looked at the impact of an attack that affected the five most active banks in wholesale payments. If any one of them were to be impaired, the effects would spill over to affect 38% of the four other institutions, on average, it said.
The New York Fed also is trying to monitor risky developments in the shadow-banking sector but is limited by a paucity of information, Williams said: “It’s not well-understood in terms of data and risks out there.” This sector includes nonbanks such as asset managers, insurers, hedge funds and money market mutual funds, which conduct short-term debt trades with each other.