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FRM Part II · FRM Exam Part II · The Financial Stability Implications of Artificial Intelligence

A bank's risk manager is assessing how AI-enabled attackers change the cyber loss profile. Attack frequency rises and a single successful incident could disable a shared service used by many counterparties. Which implication for risk measurement is most appropriate?

Scenario and stress testing of severe, correlated cyber events should supplement historical loss data. AI can change attack patterns and shared dependencies create tail events that past losses may not reflect, so relying only on history or on average loss would understate risk.

  1. AStress and scenario analysis of severe, correlated cyber events should complement historical-loss-based estimatesCorrect
  2. BHistorical internal loss data alone is sufficient because AI does not alter threat patterns
  3. CCyber risk should be excluded because it cannot be quantified at all
  4. DOnly the average annual loss matters, so tail scenarios can be ignored

Explanation

AI may change attack methods, so past losses can understate future severity, and shared dependencies create correlated tail events. Scenario and stress analysis capture these low-frequency, high-impact outcomes. Relying on history alone, excluding cyber risk or focusing only on average losses would ignore the tail.

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