Fed's Lockhart warns of unusual threats to financial system

Dennis Lockhart, President, Federal Reserve Bank of Atlanta, takes part in a panel discussion titled ''Twist and Shout: The Limits of U.S. Monetary Policy'' at the Milken Institute Global Conference in Beverly Hills, California May 1, 2012.

BERLIN (Reuters) - A top Federal Reserve official warned on Tuesday of potential risks to financial stability from cyberattacks on the U.S. payments system and from a looming funding gap in public pensions.

In a speech to a conference in the German capital, the president of the Atlanta Federal Reserve, Dennis Lockhart, said that at a global level the span of vigilance needed to be extremely broad.

"Our radar should scan widely - beyond the most obvious sources of risk," said Lockhart, according to the text of his speech, arguing that markets viewed by some as too small to cause much trouble before the 2008 crisis had ended up posing systemic-scale problems.

Homing in on the issue of cyber-security, he said the fragmented nature of the U.S. payments industry and its rapid evolution were creating many areas of vulnerability.

"A real financial stability concern, however, is the potential for malicious disruptions to the payments system in the form of broadly targeted cyberattacks," he said.

He argued that they should now probably be viewed "as a persistent threat with potential systemic implications".

Although they were unlikely to have as deep or long-lasting an impact on financial system stability as fiscal crises or bank runs, Lockhart said the potential attacks provided justification for collaborative attempts to take preventative measures.

Another growing concern is a potential funding gap in public pensions, Lockhart said, adding that this would more likely appear as a "gradually accreting threat to growth" than as a single event shock.

"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."

(Reporting by Madeline Chambers, editing by Gareth Jones)