We model how a cyber attack may be amplified through the U.S. financial system, focusing on the wholesale payments …

We analyze how systemic cyber risk in the wholesale payments network relates to adverse financial conditions. We show …

follow a simple strategy to manage the risk of account overdrafts — delaying the settlement of large payments relative to … that of small payments. More sophisticated strategies, such as increasing settlement delays when own liquid balances are …

achieved without an LSM, as long as some payments can be delayed without cost. In equilibrium with an LSM, we show that there … can be either too few or too many payments settled early compared with the planner’s allocation, depending on the …

, or delay their payments after observing a noisy signal of the shock. With a balance-reactive LSM, banks can set a balance … threshold below which payments are not released from the queue. Banks can choose their threshold such that the release of a … effects on different types of payments. Payments that are costly to delay will be settled at least as early, or earlier, with …

, banks rely heavily on incoming funds to finance outgoing payments, necessitating a high degree of coordination and … in the demand for intraday credit and, ultimately, a disruption of payments. Additionally, we find that when a bank is … identified as vulnerable to failure and other banks choose to cancel payments to that bank, there are systemic repercussions for …

-saving mechanism (LSM). We show that an LSM allows banks to economize on collateral while also providing incentives to submit payments … earlier. The reason is that, in our model, an LSM allows payments to be matched and offset, helping to settle payment cycles … liquidity ; payments …