Abstract
We model how a cyber attack may be amplified through the U.S. financial system, focusing on the wholesale payments network. We estimate that spillovers of an attack on one of the five most active banks would impair 31% of the network, on average, with some days significantly worse. When other banks respond by liquidity hoarding, forgone payment activity can reach more than 2.5 times daily GDP. A reverse stress test shows attacks on groups of small banks can also impair a significant amount of the network. Interconnectedness through third-party providers and financial market utilities poses additional risks.
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