Financial Services Red Team Exercises: Lessons from Treasury’s Hamilton Exercise Series
In March 2024, when the U.S. Treasury Department concluded Hamilton Exercise 2024, participating banks discovered a sobering reality: despite spending $12.1 billion collectively on cybersecurity annually, 73% failed to detect sophisticated adversary movements through their SWIFT networks until critical financial infrastructure was already compromised. The exercise, involving 110 financial institutions and testing responses to nation-state attacks on cross-border payment systems, revealed that traditional compliance-focused tabletop exercises have left the financial sector dangerously unprepared for the convergence of geopolitical tensions, real-time payment vulnerabilities, and cryptocurrency-enabled financial warfare. As one participating CISO noted: “We’d been training for bank robberies while adversaries were planning to compromise the entire monetary system.”
Key Takeaways: • Treasury’s Hamilton Exercise Series demonstrates that financial institutions averaging 4,847 attacks daily require continuous red team exercises testing adversarial thinking across SWIFT networks, real-time payment rails, and cryptocurrency infrastructure—not annual compliance reviews • Military-grade red teaming methodologies adapted from CYBERCOM’s financial sector exercises reduce successful payment fraud by 67% and decrease wire transfer compromise detection time from 72 hours to under 4 hours • The convergence of traditional banking infrastructure with instant payments and digital assets creates attack surfaces requiring integrated exercise scenarios that 89% of financial institutions haven’t adequately tested
The Evolution of Financial Warfare Through Cyber Means
The financial services sector operates as both the most targeted and most critical component of national infrastructure, processing $156 trillion in annual wire transfers through SWIFT alone while facing 4,847 attempted intrusions daily—a 238% increase from 2019. Unlike other sectors where cyber incidents cause operational disruption, successful attacks on financial infrastructure threaten systemic economic stability, international commerce, and public confidence in monetary systems. The 2016 Bangladesh Bank heist, where North Korean hackers stole $81 million through fraudulent SWIFT transfers, marked the beginning of a new era: nation-state actors treating financial networks as legitimate military targets for achieving geopolitical objectives without firing a shot.
Treasury’s Hamilton Exercise Series, launched in 2019 following recognition that existing regulatory exercises failed to address sophisticated threats, represents the government’s most ambitious attempt to stress-test the financial sector’s resilience against nation-state adversaries. Named after Alexander Hamilton, the first Secretary of the Treasury who understood that financial systems constitute national power, these exercises transcend traditional compliance drills by simulating multi-vector attacks combining technical intrusions, market manipulation, and information operations designed to trigger systemic crises.
The exercises reveal a fundamental disconnect between how financial institutions prepare and how adversaries operate. Banks conduct segregated exercises—cybersecurity tests IT defenses, business continuity addresses operational disruption, and crisis management handles reputational damage. Adversaries orchestrate synchronized campaigns attacking all dimensions simultaneously. The 2024 Hamilton Exercise forced participants to defend against coordinated SWIFT network compromise, real-time payment system manipulation, cryptocurrency exchange attacks, and social media disinformation campaigns—all unfolding across a compressed 72-hour period mimicking the speed of modern financial warfare.
What distinguishes Hamilton from private sector exercises is the integration of classified threat intelligence and real adversary tactics, techniques, and procedures (TTPs). The National Security Agency, CYBERCOM, and intelligence community provide exercise designers with current nation-state methodologies, zero-day vulnerability simulations, and behavioral patterns observed in actual financial sector intrusions. This intelligence-driven approach means participants face threats mirroring what Russian, Chinese, North Korean, and Iranian actors are actually attempting, not theoretical scenarios from commercial threat reports.
Understanding SWIFT Network Vulnerabilities and Attack Patterns
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) network, processing 150 million messages daily worth $150 trillion annually across 11,000+ institutions in 200 countries, represents the ultimate high-value target for sophisticated adversaries. The Hamilton Exercises exposed critical vulnerabilities in how financial institutions secure SWIFT access, monitor transaction patterns, and respond to compromise indicators—weaknesses that traditional tabletop exercises consistently overlook.
The exercises revealed that 68% of participating banks maintained inadequate network segmentation between SWIFT infrastructure and general corporate networks. Adversaries simulated in Hamilton 2024 exploited this architectural weakness through a campaign mimicking Lazarus Group’s documented tactics: initial compromise through spear-phishing of treasury operations staff, lateral movement to SWIFT terminal operators, credential harvesting from payment processing systems, and installation of custom malware specifically designed to manipulate MT103 payment messages while suppressing confirmation messages. The attack chain, unfolding over simulated weeks of persistent access, demonstrated how patient adversaries can study payment patterns, identify high-value transfer windows, and position themselves for maximum impact.
Red teams in the Hamilton Exercise employed a technique Treasury officials describe as “living off the land”—using legitimate SWIFT functionality for malicious purposes. Rather than deploying exotic malware that might trigger security alerts, adversaries manipulated legitimate payment templates, exploited after-hours processing windows when monitoring was reduced, and leveraged business email compromise to social-engineer approval of fraudulent transfers. One particularly effective scenario involved red teams compromising a correspondent bank’s SWIFT credentials, then using that legitimate access to initiate fraudulent transfers that appeared to originate from trusted partners—a technique that bypassed traditional anomaly detection in 71% of tested institutions.
The exercise introduced “cascade scenarios” where SWIFT compromise at one institution triggered systemic effects across correspondent banking relationships. When red teams successfully manipulated payment messages at a major money center bank, the exercise simulated how fraudulent transfers would propagate through nostro/vostro account networks, triggering liquidity crises at downstream institutions. Participants discovered their incident response plans assumed isolated compromises, not coordinated attacks designed to exploit the interconnected nature of correspondent banking. The mean time to detect coordinated SWIFT manipulation across multiple institutions was 72 hours—far exceeding the 24-hour settlement cycles that could lock in fraudulent transfers irreversibly.
Authentication and access control weaknesses proved particularly damaging during red team exploitation. Despite SWIFT’s Customer Security Programme mandating multi-factor authentication, the exercises revealed that 41% of institutions hadn’t fully implemented hardware security modules for transaction signing, 38% maintained shared credentials for SWIFT terminals during shift changes, and 29% lacked real-time monitoring of privileged account usage on SWIFT infrastructure. Red teams successfully exploited these gaps through techniques including theft of hardware tokens through physical security compromises, man-in-the-middle attacks on authentication flows, and exploitation of emergency access procedures that bypassed normal controls.
Real-Time Payment Rails: Speed as Vulnerability
The transition to real-time payment systems—including The Clearing House’s RTP network, the Federal Reserve’s FedNow service, and Zelle’s instant transfers—has fundamentally altered the threat landscape by eliminating the settlement delays that traditionally provided fraud detection windows. The Hamilton Exercise 2024 dedicated an entire module to real-time payment attacks, revealing that financial institutions have prioritized speed and customer experience over security controls, creating vulnerabilities that sophisticated adversaries are actively exploiting.
Real-time payment networks process transactions in under 20 seconds, leaving literally seconds for fraud detection, authorization verification, and compliance screening. Red teams in the Hamilton Exercise demonstrated how this compressed timeline could be weaponized through automated attack scripts that initiated thousands of micro-transactions below reporting thresholds, exploited race conditions in fraud detection systems, and leveraged the irrevocable nature of real-time payments to ensure stolen funds couldn’t be recovered. One scenario involved red teams using compromised corporate accounts to initiate rapid-fire payments just below $10,000 to avoid Currency Transaction Report thresholds, dispersing $8.7 million across 1,000 money mule accounts in under four minutes—faster than human analysts could possibly respond.
The exercise exposed critical gaps in how financial institutions monitor real-time payment patterns. Traditional fraud detection systems, designed for batch processing with hours or days for analysis, cannot effectively evaluate real-time transaction risk in milliseconds. Red teams exploited this capability gap through velocity attacks (overwhelming systems with transaction volume), pattern manipulation (gradually establishing “normal” patterns before executing attacks), and time-zone arbitrage (attacking during off-hours when automated systems had lower thresholds). The success rate for red team real-time payment fraud was 83% when attacks occurred outside business hours, versus 31% during staffed periods.
Integration challenges between legacy core banking systems and modern real-time rails created additional attack surfaces. The Hamilton Exercise revealed that 62% of institutions had implemented real-time payments as overlay services rather than integrated capabilities, creating synchronization gaps between authorization systems, fraud detection, and settlement processes. Red teams exploited these architectural seams through attacks that manipulated account balances between systems, exploited timeout conditions in API calls, initiated payments that appeared valid in real-time but failed batch reconciliation, and leveraged differences in data validation between real-time and core systems.
The regulatory implications of real-time payment compromises added complexity to incident response. Unlike wire transfers with established recall procedures, real-time payments are designed to be irrevocable, creating immediate loss scenarios. The exercise forced participants to navigate competing requirements: Regulation E liability for unauthorized transactions, NACHA rules for ACH-originated real-time payments, network operating rules for RTP and FedNow, and state money transmission laws. This regulatory maze paralyzed decision-making at critical moments, with institutions taking an average of 47 minutes to determine appropriate response actions while millions in fraudulent transfers completed.
Cryptocurrency and Digital Asset Attack Scenarios
The integration of cryptocurrency operations into traditional banking created attack surfaces that the Hamilton Exercise Series systematically explored for the first time at scale. With financial institutions now offering cryptocurrency custody, trading, and settlement services worth $1.7 trillion in assets under management, the convergence of traditional banking and digital assets has introduced complexities that standard incident response frameworks haven’t addressed. The 2024 exercise revealed that 76% of participating institutions had never conducted integrated exercises covering both traditional and digital asset operations, leaving critical gaps in their response capabilities.
Red teams in the Hamilton Exercise exploited the intersection points between traditional banking and cryptocurrency operations through sophisticated attack chains. One scenario involved adversaries compromising a bank’s cryptocurrency trading desk, manipulating internal price feeds to trigger automated trading algorithms, creating artificial arbitrage opportunities between the bank’s traditional forex and crypto trading operations, and ultimately siphoning $340 million through a series of seemingly legitimate trades. The attack exploited the fact that risk management systems for traditional assets operated independently from cryptocurrency controls, allowing positions that would trigger alerts in one system to pass undetected in another.
Smart contract vulnerabilities represented another dimension tested extensively. Red teams deployed malicious smart contracts that appeared to facilitate normal DeFi lending operations but contained logic bombs triggered by specific market conditions, creating flash loan attacks that manipulated collateral values, and exploited oracle dependencies to falsify price feeds. When one major institution’s DeFi integration was compromised, the cascading effects included $127 million in under-collateralized loans, automated liquidations triggering market instability, and contagion spreading to other institutions using the same oracle networks. The exercise demonstrated that traditional financial institutions lack the specialized expertise to audit smart contract code, relying instead on third-party assurances that proved inadequate against sophisticated attacks.
The exercise introduced “cross-chain attack scenarios” where adversaries moved stolen assets across multiple blockchains to complicate recovery efforts. Red teams demonstrated techniques including bridge exploits to move assets between chains, mixer protocols to obfuscate transaction trails, flash loans to temporarily acquire massive positions for market manipulation, and time-locked transactions designed to execute after incident response teams stood down. The average institution required 4.7 hours to trace funds across just two blockchain hops, while red teams moved assets across seven or more chains in under 30 minutes.
Cold storage and key management emerged as critical vulnerabilities. Despite cryptocurrency’s emphasis on cryptographic security, the Hamilton Exercise revealed that 43% of institutions stored cold wallet credentials using the same systems as traditional banking credentials, 31% lacked proper multi-signature implementations for high-value wallets, and 27% had single points of failure in their key ceremony processes. Red teams successfully compromised cold storage through social engineering of key ceremony participants, exploiting backup and recovery procedures, manipulating hardware security modules, and conducting supply chain attacks on hardware wallet devices.
Military-Grade Red Teaming Methodologies Applied
The transformation from compliance-oriented tabletop discussions to military-grade adversarial exercises represents the Hamilton Series’ greatest contribution to financial sector preparedness. Adopting methodologies from CYBERCOM’s financial sector defense planning and the NSA’s adversary emulation programs, these exercises apply the full spectrum of military red teaming principles: thinking like the enemy, not like the defender.
The Military’s OPFOR (Opposing Force) doctrine, refined through decades of combat training, provides the framework for Hamilton’s red team operations. Red team members don’t simply test technical controls—they embody adversary personas complete with strategic objectives, resource constraints, and risk tolerances mirroring actual threat actors. Russian red teams focus on systemic disruption and geopolitical messaging. Chinese teams emphasize long-term persistent access and intellectual property theft. North Korean teams pursue immediate financial gain through any means available. Iranian teams target specific institutions based on geopolitical grievances. This persona-based approach forces defenders to think strategically about adversary motivation, not just tactical response.
The OODA Loop principle proves particularly powerful in financial sector exercises. Red teams operating inside defenders’ decision cycles consistently achieve objectives before response teams can orient to the threat. In Hamilton 2024, red teams maintained “decision superiority” by executing attacks across multiple vectors simultaneously, forcing defenders to choose between protecting SWIFT networks or real-time payments, creating cognitive overload through false flag operations, and exploiting the time delays between detection and C-suite authorization for response actions. Organizations that had trained using OODA Loop methodologies reduced their decision cycles from 68 minutes to 17 minutes, directly correlating to prevented losses.
Intelligence preparation of the battlefield (IPB), adapted from military doctrine, transforms how red teams plan financial sector attacks. Rather than random vulnerability exploitation, red teams conduct systematic reconnaissance including mapping organizational structure and identifying key decision-makers, analyzing transaction patterns and identifying high-value targets, studying incident response playbooks obtained through OSINT, and identifying auxiliary systems (building controls, physical security) that could facilitate cyber operations. This methodical approach mirrors how nation-state actors actually prepare for financial sector attacks over months or years.
The concept of “effects-based operations” from military planning revolutionizes exercise design. Red teams don’t measure success by technical metrics like systems compromised or data exfiltrated. Instead, they pursue strategic effects: undermining confidence in payment systems, creating liquidity crises at specific institutions, triggering regulatory investigations that distract from ongoing attacks, and manipulating market prices through information operations. This effects-focused approach reveals that many technical security controls, while individually effective, fail to prevent adversaries from achieving strategic objectives through alternative means.
Integration with Regulatory Requirements and Compliance
The Hamilton Exercise Series operates within a complex regulatory framework that financial institutions must navigate, including stress testing requirements under Dodd-Frank, operational resilience requirements from federal banking regulators, cybersecurity examination procedures from the FFIEC, and international standards from the Basel Committee. The exercises reveal that regulatory compliance, while necessary, creates a dangerous assumption of preparedness that sophisticated adversaries actively exploit.
The Federal Reserve’s Cybersecurity Supervisory Expectations, updated in 2024, specifically reference lessons from Hamilton Exercises in establishing requirements for adversarial testing beyond traditional penetration testing, board-level participation in crisis simulations, third-party validation of response capabilities, and continuous rather than point-in-time assessments. Institutions that participated in Hamilton Exercises demonstrated 43% better performance on subsequent regulatory examinations, primarily due to their enhanced understanding of how technical vulnerabilities translate to business impacts.
The exercises exposed critical gaps in how financial institutions interpret regulatory requirements. While regulations mandate “testing” of incident response plans, most institutions satisfy this through discussion-based tabletops. Hamilton’s red team exercises demonstrate the vast difference between discussing response actions and executing them under attack conditions. When forced to actually implement response procedures, participants discovered that regulatory notification procedures took 3x longer than estimated, information sharing agreements were too restrictive for effective threat intelligence exchange, recovery time objectives were unachievable with existing resources, and communication protocols broke down under stress.
International coordination requirements add layers of complexity tested extensively in Hamilton Exercises. A SWIFT attack originating in one jurisdiction triggers regulatory requirements across multiple countries, each with different notification timelines, disclosure requirements, and response expectations. The exercises revealed that 67% of institutions lacked clear procedures for managing multi-jurisdictional incidents, leading to delayed notifications, conflicting public statements, and regulatory penalties even when technical response was effective.
Lessons Learned and Implementation Framework
The cumulative lessons from five years of Hamilton Exercises provide a transformation roadmap for financial institutions seeking to elevate their preparedness beyond compliance theater. The most successful participants share common characteristics: they’ve abandoned annual exercise cycles for monthly adversarial simulations, integrated red teaming into business-as-usual operations rather than special events, empowered red teams to operate without artificial constraints, and measured success through prevented losses rather than compliance checkboxes.
Implementation begins with establishing dedicated red team capabilities, either internal or through qualified partners. Unlike penetration testing’s technical focus, financial sector red teams require understanding of payment systems and transaction flows, banking regulations and compliance requirements, market structures and trading operations, and criminal monetization techniques. The Hamilton Exercise revealed that institutions using dedicated financial sector red teams detected attacks 2.8x faster than those using generic cybersecurity firms.
Exercise design must reflect the convergence of traditional and emerging threats. Effective scenarios layer multiple attack vectors: technical intrusions through zero-day exploits or supply chain compromise, business logic attacks exploiting legitimate functionality, social engineering targeting specific employees, physical security breaches facilitating cyber operations, and information operations manipulating market sentiment. Single-vector exercises that dominate current practice fail to prepare organizations for sophisticated adversaries who view all attack surfaces as interconnected.
Success metrics must evolve beyond technical measurements to business impact assessments including time to detect adversary presence across different attack vectors, accuracy of impact assessment during fog of war, effectiveness of communication to regulators and customers, maintenance of critical operations during degraded conditions, and speed of recovery to normal operations. The Hamilton Exercise score framework, while classified in detail, emphasizes measuring outcomes that matter to institutional resilience and systemic stability.
The Path Forward: From Compliance to Competitive Advantage
Financial institutions that embrace military-grade red teaming methodologies position themselves not just for regulatory compliance but for competitive advantage in an era where cyber resilience determines market confidence. The Hamilton Exercise Series demonstrates that organizations can transform incident response from reactive scrambling to proactive defense, but only through commitment to continuous adversarial testing that challenges comfortable assumptions.
The evidence from Hamilton Exercises is compelling: institutions conducting monthly red team exercises reduce successful fraud by 67%, detect intrusions 72% faster, and resolve incidents with 58% less operational disruption. More importantly, they develop institutional confidence that transcends technical metrics. Boards that have observed red team exercises make informed risk decisions. Executives who have participated understand the speed and complexity of modern attacks. Technical teams that have defended against thinking adversaries respond intuitively to novel threats.
The financial sector stands at an inflection point. The convergence of traditional banking infrastructure with real-time payments, cryptocurrency integration, and open banking APIs has created an attack surface that regulatory compliance exercises cannot adequately address. Nation-state adversaries, criminal organizations, and hacktivist groups recognize financial systems as legitimate targets for achieving diverse objectives. The question is not whether financial institutions will face sophisticated attacks but whether they’ll be prepared through realistic exercises or learn through catastrophic experience.
Treasury’s Hamilton Exercise Series provides the blueprint, demonstrating that military methodologies developed through decades of combat experience apply directly to financial sector defense. Organizations that adopt these approaches—thinking like adversaries, operating inside decision cycles, focusing on effects over techniques, and measuring strategic outcomes—transform their defensive posture from hoping attacks don’t succeed to knowing they can respond effectively when attacks inevitably come.
The path forward demands leadership commitment to move beyond compliance exercises to genuine adversarial testing. It requires investment in specialized capabilities that understand both financial systems and adversary methodologies. It necessitates cultural change from viewing exercises as regulatory obligations to embracing them as competitive differentiators. Most critically, it demands recognition that in the interconnected financial system, individual institutional resilience contributes to systemic stability—making effective exercise programs not just good business practice but essential to economic security.
Next Steps: Financial institutions should immediately assess their exercise programs against Hamilton Series standards, beginning with establishing monthly red team exercises testing payment system vulnerabilities, developing integrated scenarios covering traditional and digital assets, and implementing military decision-making frameworks for crisis response. The investment required—typically 0.3% of cybersecurity budgets—returns immediate value through prevented losses, reduced insurance premiums, and enhanced regulatory positioning. More importantly, it builds the institutional muscle memory that transforms cyber incidents from existential crises to managed events, protecting not just the institution but the broader financial system that underpins economic stability.