Cyberattacks on Small Banks and the Impact on Local Banking Markets

Abstract Cyberattacks on small banks have direct and spillover effects in local markets. Following successful cyberattacks, hacked small banks experience a decline in deposit growth rates. This effect of cyberattacks is not observed in hacked large banks. Cyberattacks on small banks also increase the local market share of large banks through positive deposit spillovers. The consequent change in market structure reduces credit access for small borrowers and impedes small establishment growth. Our findings show that, unlike large banks, small banks are not seen by depositors as having the resources to maintain adequate cybersecurity systems to protect customers from evolving cyber threats.