Short Circuiting Short-Term Funding

Abstract

Cyber-induced operational outages can affect the U.S. repurchase agreements (repo) market. Using transaction-level data and institutional cybersecurity ratings, we simulate disruptions to key cash lenders. Our findings indicate that outages at certain institutions can disrupt over $100 billion in funding and raise rates for repo by over 50 basis points. The severity of these disruptions are sensitive to outage timing and duration, with peak settlement times and slower recoveries amplify stress. The results underscore the importance of both cybersecurity preparedness and institutional resilience in limiting financial market disruptions. This study links cyber risk to intraday funding dynamics and rate volatility and offers a framework for assessing and mitigating cyber threats in core funding markets.

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Keywords: Cybersecurity, Cyber Resiliency, Repo, Operational Risk, Stress Testing