Cyberattacks on Small Banks and the Impact on Local Banking Markets

This paper studies what happens to local banking markets when a small bank suffers a successful cyberattack, using a stacked difference-in-differences design on 16 cyber incidents at small U.S. banks drawn from the Privacy Rights Clearinghouse database over 2005–2017. Attacked small banks experience a deposit growth rate roughly 22 percentage points lower than matched control banks in the two years following a breach, reflecting depositors’ loss of confidence in the targeted institution’s cybersecurity capacity. The deposit attrition is sharply stronger in counties with lower digital literacy, consistent with less-informed depositors placing disproportionate weight on a visible security failure. Deposit losses do not flow evenly to all competitors: positive spillovers accrue only to the dominant or largest banks in the local market, not to other small banks, concentrating market share toward large incumbents. Affected small banks subsequently attract riskier mortgage borrowers — proxied by higher loan-to-value ratios and lower FICO scores — suggesting that the deposit-cost pressure from a cyberattack induces yield-seeking behavior. The aggregate effect is a reduction in credit access for informationally opaque small borrowers that slows local small-establishment growth.

Fabian Gogolin | Macro Paper Warehouse

Cyberattacks on Small Banks and the Impact on Local Banking Markets