Cyber risk is the most significant threat to the banking industry, the leader of the Federal Reserve Board told a Senate committee Tuesday.
In testimony over the impact of Federal Reserve and Treasury actions to counter the financial effects of the coronavirus crisis before the Senate Banking Committee, Fed Chair Jerome H. (“Jay”) Powell tagged cybersecurity at the nation’s banks and financial firms as the greatest risk to the financial system.
Powell noted that the banking system is “highly capitalized,” “much better at measuring its risks,” and ”well fortified” against losses from loan defaults. However, he indicated, the risks that those positions protect against is different from cyber attacks.
“The risk we haven’t really faced the full brunt of yet is a successful cyber attack on a financial institution of some kind – be it a financial market utility, a bank or some other type of financial institution,” he said.
Powell indicated that preparing to face that risk is “something of a very high priority.”
Treasury Secretary Janet Yellen, also testifying before the committee, asserted that threats to financial stability have grown out of activity in the shadow banking sector, many of which she said “came to light during the pandemic.” She also highlighted climate-related risks. She said she is addressing both as chair of the Financial Stability Oversight Council (FSOC).