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FRM Part II · FRM Exam Part II · Digital Resilience and Financial Stability: The Quest for Policy Tools in the Financial Sector

A group of twelve banks all rely on one cloud provider for their payment-processing platform. An outage at the provider would stop payments at all twelve. From a systemic-risk perspective, which description best fits this exposure?

The exposure is concentration risk at a single point of failure. Because all twelve banks depend on one provider, an outage causes correlated, simultaneous disruption across institutions, so adding more users raises systemic exposure rather than diversifying it.

  1. AIdiosyncratic risk that diversifies as more banks join the provider
  2. BConcentration risk at a single point of failure that creates correlated operational disruptionCorrect
  3. CMarket risk arising from interest rate changes
  4. DPure credit risk against the cloud provider

Explanation

One provider supporting many firms is a single point of failure; an outage causes simultaneous, correlated disruption. More banks using it increases, not reduces, the concentration. The loss arises from service unavailability, not rates or credit default.

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