Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/265226 
Year of Publication: 
2022
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2022-32
Publisher: 
Bank of Canada, Ottawa
Abstract: 
Financial markets face the constant threat of cyber attacks. We develop a principal-agent model of cyber-attacking with fee-paying clients who delegate security decisions to financial platforms. We derive testable implications about clients' vulnerability to cyber attacks and about the fees charged. We characterize which cyber attacks actors choose. We find that ransomware attacks are more successful than traditional attacks and that platforms underinvest in security when security is unobservable. Regulating security investment (e.g., minimum security standards) or improving transparency (e.g., security ratings) can improve welfare. Our results support regulatory efforts to increase transparency around cyber security and cyber attacks.
Subjects: 
Economic Models
Financial System Regulation and Policies
Financial Services
Financial Stability
Payment Clearing and Settlement Systems
JEL: 
D78
D81
G18
G21
G23
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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