Our financial economists introduce the first cyber-risk forecasting framework covering nearly all U.S. banks, predicting whether a bank will experience a cyber incident within the next year. Combining cybersecurity ratings, actual incident data, and regulatory reports, the model identifies key risk factors—unpatched software, weak encryption protocols, and specific balance-sheet characteristics—and shows that vulnerabilities are most dangerous when they appear together. For the highest-risk banks, incident probability reaches 90%. The framework addresses a critical gap: although cyber incidents could threaten financial stability, supervisors and banks lack standard measures of vulnerability. It strengthens oversight and risk management using existing data sources without imposing new reporting requirements.

The Richmond Fed publishes a quarterly Banking Conditions Report focusing on key metrics to help equip bank supervisors and bankers with valuable insights into Fifth District and national financial performance and emerging trends. We hope to use the data, as well as the examiner perspective, to share insights into the District's financial institution safety and soundness. This article takes a closer look at the recent modest rise in non-performing loans (NPLs) in the Fifth District—particularly in commercial and industrial (C&I) loans.