COB Research Spotlight: Impact of cyberattacks on the profitability of U.S. commercial banks

Publication Name: Journal of Global Business Insights

Authors: Asligul Erkan-Barlow (ECU), Thanh Ngo (ECU) and Rajni Goel (Howard University).

Summary: This study examined the effects of cyberattacks on the profitability of U.S. public and private commercial banks using a sample of 120 data breaches across various institutions. The results showed that cyberattacks negatively influence bank profitability, with effects more robust in the 12 quarters following a breach, especially from non-hack breaches. Large and private banks suffer more than small and public banks, with breaches resulting in decreased deposits and loans and increased liquidity.

What are the top three takeaways from the findings?

  • The results showed that cyberattacks, especially non-hack breaches such as unintended disclosures or breaches caused by company insiders, negatively influence bank profitability with more robust effects in the three years following a breach.
  • Among breached banks, small and public banks outperform large and private banks.
  • The negative performance consequences of the breaches stem from the decrease in deposits and loans and the increase in liquidity.

What are the practical implications of the findings?

  • We highlighted that non-hack breaches are more detrimental to commercial bank performance, suggesting that bank executives should prioritize preventing these incidents.
  • The delayed effect of data breaches, taking two to three years to manifest, emphasizes the need for long-term vigilance by bank managers.
  • Our research provides evidence for the stronger negative impact of cyberattacks on larger and privately owned banks through specific channels. This understanding equips bank managers to try to restore trust to prevent declines in customer deposits and continue their lending activities to maintain profitability.
  • These findings have practical implications for individual bank customers and businesses as they might be better off working with smaller banks, especially when they seek debt financing.
  • Our study also has policy implications. Commercial banks are the backbones of a healthy economy, and any threat to their profitability risks the entire financial system. They contribute to industrial growth and job creation. The Federal Reserve Bank and regulatory authorities such as the Securities Exchange Commission and the Financial Industry Regulatory Authority should be sensitive to cybersecurity to prevent any negative economic impact. The Federal Reserve Bank could provide extended support to breached banks, and regulatory agencies could provide specific guidelines to assist banks in developing and maintaining security practices.