Cybersecurity, credit risk top concerns for community banks | ABA Banking Journal (2024)

FAQs

What is the largest source of credit risk for most banks? ›

For most banks, loans are the largest and most obvious source of credit risk. However, other sources of credit risk exist throughout the activities of a bank, including the banking book and trading book, and both on and off the balance sheet.

The IMF claims cyberattacks have cost the financial sector roughly $12bn in the last 20 years and said extreme attacks could cause masses of customers to withdraw funds from banks.

Although no significant “cyber runs” have occurred thus far, our analysis suggests modest and somewhat persistent deposit outflows have occurred at smaller US banks after a cyberattack. Cyber incidents that disrupt critical services like payment networks could also severely affect economic activity.

Banks have been mandated to strengthen their IT risk governance framework, which includes a mandate for their Chief Information Security Officer to play a proactive role in addition to the Board and the Board's IT committee playing a proactive role in ensuring compliance with the necessary standards.

The major risks faced by banks include credit, operational, market, and liquidity risks. Prudent risk management can help banks improve profits as they sustain fewer losses on loans and investments.

The 5 C's of credit are character, capacity, capital, collateral and conditions. When you apply for a loan, mortgage or credit card, the lender will want to know you can pay back the money as agreed. Lenders will look at your creditworthiness, or how you've managed debt and whether you can take on more.

Weak and stolen credentials

Although hacking attacks are frequently cited as the leading cause of data breaches, it's often the vulnerability of compromised or weak passwords or personal data that opportunistic hackers exploit.

The biggest risk of online banks is that someone will access your savings or checking account and steal your information and money. This typically happens when your account is hacked by cybercriminals who get your username and password. However, these risks are not limited to banks that operate exclusively online.

Your bank should refund any money stolen from you as a result of fraud and identity theft. They should do this as soon as possible - ideally by the end of the next working day after you report the problem.

In 2024, a notable trend within the banking sector's security measures is the application of Artificial Intelligence (AI) for mitigating fraud. The finance industry faces substantial challenges due to fraud, which incurs significant annual financial losses.

How banks can improve cyber security? ›

To enhance cybersecurity, banks must adopt measures to improve their authentication processes and protect customer accounts. This includes implementing multi-factor authentication (MFA) that combines multiple authentication factors, such as passwords, biometrics, and tokens, to strengthen security.

Cyberattacks affect banks in many ways. In addition to the monetary loss that results from hackers stealing money from banks, banks incur additional costs in implementing cybersecurity to protect assets. Furthermore, cyberattacks decrease the trust that customers have in institutions.

Why It's Not Covered “…by law, deposit insurance only protects accounts if your insured banking institution fails. FDIC deposit insurance does not protect accounts from a fraud or theft online (or otherwise).

Professional, Business and Consumer Services. Professional, business, and consumer services include a wide spectrum, including law firms, marketing agencies, consulting services, and more. Since these kinds of organizations work with data (often sensitive), they are a prime target for cybercriminals.

The major sources of credit risk are default probability and recovery. Together with interest rate risk, they determine the price of credit derivatives. In this article, we study the relative importance of these sources by testing pair-nested structural models with data from credit default swaps.

Junk bonds are debt securities rated poorly by credit agencies, making them higher risk (and higher yielding) than investment grade debt.

These risks are: Credit, Interest Rate, Liquidity, Price, Foreign Exchange, Transaction, Compliance, Strategic and Reputation. These categories are not mutually exclusive; any product or service may expose the bank to multiple risks.

Internal Fraud and External Fraud

Operational risk losses from internal scams can stem from asset misappropriation, forgery, tax non-compliance, bribes, or theft. Fraud committed by external parties includes check fraud, theft, hacking, system breaches, money laundering, and data theft.