The term “systemic risk” became popular during the financial crisis.

At the time, he mainly described the danger that the bankruptcy of a bank could trigger a chain reaction that would endanger the entire financial system.

Today, Christine Lagarde, President of the European Central Bank (ECB), sees such “systemic risks” primarily in connection with climate change, which also poses challenges for banks;

and in cyber attacks on the financial system.

She highlighted this on Wednesday at the annual conference of the European Systemic Risk Board (ESRB), which was founded in 2010 in response to the financial crisis.

Risky information corruption

Christian Siedenbiedel

Editor in business.

  • Follow I follow

"The financial sector depends on robust information technology," said Lagarde. People's trust in the financial system depends on the "confidentiality, integrity and availability" of the data and systems it uses. It is therefore dangerous beyond individual cases if cyber attacks ensure that information and data are falsified. Nothing less than confidence in the financial system itself could be shaken. "In this sense, cyber attacks represent a systemic risk," said the ECB President. So far, there has been no cyber incident of systemic importance against the financial system."But the cyberattacks on hospitals in Europe during the Corona crisis and the attack on the Colonial Pipeline in the United States gave us a taste of what could happen in the future," said Lagarde. Such an attack is probably only a question of "when", not "if".

There are three reasons for this, said Lagarde: First, advancing digitization is making companies more and more vulnerable to cyber attacks. The crisis accelerated this trend. “The financial institutions had to adapt their technological infrastructure to the sudden increase in home offices and remote customer relationships, which increased efficiency, but also increased vulnerability.” Second, the increasing networking of information systems facilitated the rapid spread of cyber incidents. There are around 22,000 financial companies in the EU and digitization has deepened the links between them and with third parties. “This is why a cyber incident can quickly escalate from an operational disruption to a systemic event,” warned Lagarde.

Third, cyber incidents would become more common and more sophisticated overall.

The number of cyber attacks reported to the ECB alone rose by 54 percent in 2020 compared to the previous year.

All institutions involved must prepare: "If such an event occurs, a coordinated and rapid response is essential." The systemic risk committee will soon present a framework on how to react in the event of such a systemic attack.

This included communication channels and a classification of cyber incidents that enable all authorities to appropriately assess the situation as quickly as possible.

Worries about the rise in the mountain of debt

Lagarde's predecessor at the head of the ECB, Jean-Claude Trichet, recalled the founding years of the ESBR: the financial crisis and the euro crisis.

The time when not only Greece had to be saved, but also Ireland, Portugal, Italy and Spain came under considerable pressure.

At that time, interventions were carried out that were difficult to implement, were heavily criticized - but were "absolutely necessary" from his point of view today.

Trichet warned that the crises of the past, from the Asian crisis to the financial crisis, were largely not foreseen.

That let be careful for the future.

What worries him at the moment is the global increase in debt.