Cyber attacks pose a significant risk to financial stability and could lead to a run on the banks if customers lose confidence in our largest financial institutions, according to the Reserve Bank of Australia.
Speaking at the CBA Global Markets Conference in Sydney on Tuesday, the Reserve Bank’s assistant governor Michelle Bullock said there are two key risks that currently threaten the financial resilience of Australia: cyber attacks and the global environment.
Ms Bullock pointed to the 2016 attack on Bangladesh Bank, which resulted in a loss of US$81 million.
“An attack that impacted the integrity of the data held by a financial institution could have a severe impact on its ability to operate,” she said.
“A successful attack on an institution could even result in a lack of confidence in the banking system more broadly, with potential withdrawals of funds from financial institutions and liquidity issues for the financial system."
The warning comes as new data this week shows the majority of Australians have lost trust in banks. This week Deloitte launched its Australian Trust Index, which measures levels of customer trust and general trust influence factors. In this Inaugural Index – Banking 2018, the professional services firm surveyed banking customers to identify the way forward to rebuild reputation and trust.
Over 2,000 randomly selected demographically representative Australians were surveyed in August of this year. The vast majority of Australians (80 per cent) believe that banks are unethical. The index found that only 20 per cent believe that banks in general are ethical – that they do what is “good, right and fair”.
In addition to its impact on consumer confidence, a cyber attack could disrupt payment systems, leading to significant difficulties for households and businesses and disruption in economic activity, Ms Bullock said.
“A disruption to the settlement of transactions for an extended period could cause issues for the operations of markets and result in a build-up of significant settlement risks in the financial system.
“These are very unlikely outcomes. But regulators are nevertheless focusing on how financial institutions are mitigating the risks – not just prevention but detection, response and recovery,” she said.
Global economy a risk to Australia
While solid growth in Australia and the world, as well as relatively stable financial markets, has supported financial stability in Australia over the past year, Ms Bullock noted that compensation for risk worldwide remains low.
She observed that asset prices are at high levels and markets are vulnerable to a sharp increase in risk sentiment which could have implications for banks' offshore funding and their assets.
“Global growth could contract sharply for a number of reasons, including escalating trade tensions or financial instability in China. Although a depreciating exchange rate would help mitigate any effects, there would be implications from this for the Australian economy.”
The RBA assistant governor fears this would impact the highly indebted household sector as well as the balance sheets of financial institutions.
“The recent policies to strengthen lending standards will help to guard against widespread financial stress, but there is a risk that if the downturn were significant enough, the financial impact on banks and borrowers would amplify the shock.”