Publications

The president and CEO of the Federal Reserve Bank of Atlanta, Dennis Lockhart, spoke at an economic conference in Berlin Nov 27 about the potential harm that cyber attacks on U.S. banks could do to the global payments system.
 

Mr. Lockhart called the attacks “a real financial concern” that the Atlanta Fed is studying. He cited attacks in recent months on U.S. banks that flooded bank web servers with junk data, allowing the hackers to target certain web applications and disrupt online services.
 

“The increasing incidence and heightened magnitude of attacks suggests to me the need to update our thinking,” he told attendees at the Hyman P. Minsky Conference organized by the Levy Economic Institute of Bard College. Dr. Minsky was an American economist who researched the characteristics of financial crises.
 

The two-day conference is being supported by the Ford Foundation, the German Marshall Fund of the United States and Deutsche Bank AG to address challenged to global growth affected by the eurozone debt crisis; the impact of the credit crunch on economic and financial markets; the larger implications of government deficits and the debt crisis for U.S., European and Asian economic policy and central bank independence and financial reform.
 

Mr. Lockhart is one of many speakers including Philip D. Murphy, the U.S. ambassador to Germany; Klaus Gunter Deutsch, director of Deutsche Bank Research; and Peter Praet, chief economist and executive board member of the European Central Bank.

Mr. Lockhart qualified his concerns saying that he didn’t think cyber attacks on payment systems was as critical as fiscal crises or bank runs. But he suggested that resilience measures of the sort banks have to maintain operations in a natural disaster such as multiple back-up sites and redundant computer systems would be appropriate.
 

Mr. Lockhart also said that the Atlanta Fed is investigating the current state of public pensions as a possible source of financial instability and called it “the other debt problem” that the U.S. faces.
 

If public funds can attain an 8 percent average annual return on their portfolios, he said that public state and municipal pension funds in the U.S would still have an $800 billion funding gap to fill.
 

Using more realistic return assumptions, such as the longer-term rate on U.S. Treasuries, the gap could reach as high as $3 trillion to $4 trillion, he added.

He cited three strategies fund managers can apply: increase contributions, decrease promised future benefit or assume more investment risk.
 

“As a financial stability consideration, the problem of pension underfunding is not likely to be the source of any immediate shock or trigger a broader systemic crisis,” he said.
 

“However, the situation needs to be monitored, as public finance does contribute to financial and economic stability more broadly.”