DP14805 The drivers of cyber risk

Author(s): Inaki Aldasoro, Leonardo Gambacorta, paolo giudici, Thomas Leach
Publication Date: May 2020
Date Revised: May 2020
Keyword(s): Bitcoin, cloud services, cryptocurrencies, cyber cost, cyber regulation, cyber risk, financial institutions
JEL(s): D5, D62, D82, G2, H41
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14805

Cyber incidents are becoming more sophisticated and their costs difficult to quantify. Using a unique database of more than 100,000 cyber events across sectors, we document the characteristics of cyber incidents. Cyber costs are higher for larger firms and for incidents that impact several organisations simultaneously. The financial sector is exposed to a larger number of cyber attacks but suffers lower costs, on average, thanks to proportionately greater investment in information technology (IT) security. The use of cloud services is associated with lower costs, especially when cyber incidents are relatively small. As cloud providers become systemically important, cloud dependence is likely to increase tail risks. Crypto-related activities, which are largely unregulated, are particularly vulnerable to cyber attacks.