Finance and Economics Discussion Series (FEDS)
November 2025
Cyber Vulnerabilities at Large US Financial Institutions and Their Third-Party Service Providers
Jin-Wook Chang, Jacob Dice, Shengwu Du, Adam Flury, Sam Jerow, Seung Jung Lee, Stacey Schreft, and Craig Vandre
Abstract:
This paper examines cyber vulnerabilities across the 100 largest US banks, non-bank financial institutions (NBFIs), and their third-party service providers. Our analysis, based on a proprietary cyber risk analytics model, shows NBFIs exhibit greater cyber vulnerabilities than banks, though banks face larger relative losses from routine incidents. We identify third-party service providers as a hidden cyber fault line in the financial system, often having greater vulnerabilities than the institutions they serve and creating systemic risks. Scenario analyses of catastrophic cyber events targeting these providers reveal potential losses up to about 60 times larger than routine incidents for both large banks and large NBFIs, with business interruptions driving most losses. Our findings highlight the need for a holistic cyber risk management approach addressing both individual vulnerabilities and systemic risks from interconnectedness in the financial system.
Keywords: Banks, Nonbank Financial Institutions (NBFIs), Third-Party Service Providers, Cyber Vulnerabilities, Cybersecurity, Scenario Analysis
DOI: https://doi.org/10.17016/FEDS.2025.103
PDF: Full Paper
Disclaimer: The economic research that is linked from this page represents the views of the authors and does not indicate concurrence either by other members of the Board's staff or by the Board of Governors. The economic research and their conclusions are often preliminary and are circulated to stimulate discussion and critical comment. The Board values having a staff that conducts research on a wide range of economic topics and that explores a diverse array of perspectives on those topics. The resulting conversations in academia, the economic policy community, and the broader public are important to sharpening our collective thinking.