Does cyber tech spending matter for bank stability?

Area of Science:

• Financial Economics
• Information Systems
• Risk Management

Background:

• The global financial crisis (GFC) prompted banks to adopt CyberTech for competitive advantage.
• While CyberTech enhances efficiency, it increases vulnerability to cybersecurity threats, necessitating strategic investment.
• Banks face a critical balance between leveraging CyberTech and managing associated cybersecurity risks.

Purpose of the Study:

• To investigate the impact of disruptive digital transformation on bank stability.
• To examine the law of diminishing marginal returns concerning overspending on CyberTech in the banking sector.
• To determine the threshold at which CyberTech spending adversely affects bank stability.

Main Methods:

• Analysis of a global dataset comprising banks from 43 countries.
• Empirical examination of the relationship between CyberTech spending and bank stability.
• Identification of technological regimes, specifically diminishing and increasing returns.

Main Results:

• CyberTech spending exceeding a specific threshold negatively impacts bank stability.
• Banks assume disproportionately higher risks for each additional dollar spent on CyberTech post-threshold.
• Two distinct technological regimes were identified: diminishing returns (improving stability) and increasing returns (reducing stability).

Conclusions:

• Overspending on CyberTech can undermine bank stability due to escalating risk exposure.
• Banks must strategically manage CyberTech investments to avoid the adverse effects of diminishing marginal returns.
• The findings offer crucial insights for sustainable CyberTech spending and cybersecurity strategies in banking.