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FRM Part II · FRM Exam Part II · Global Financial Stability Report, April 2025, Chapter 2 (Geopolitical Risk)

A policymaker is evaluating macroprudential tools to contain financial stability risks from rising geopolitical tensions. Which measure is the most directly aligned with strengthening system resilience to such shocks?

Ensuring adequate capital and liquidity buffers and stress testing against geopolitical scenarios, extended to nonbank institutions, best strengthens resilience, because buffers absorb losses and funding stress while the other choices reduce buffers or increase concentration.

  1. ALowering bank capital buffers to encourage lending during tensions
  2. BEncouraging banks to use concentrated funding from a single region
  3. CEliminating supervisory liquidity requirements for nonbanks
  4. DEnsuring adequate capital and liquidity buffers and stress testing for geopolitical scenarios, including for nonbank financial institutionsCorrect

Explanation

Resilience comes from buffers that can absorb losses and funding stress, tested against plausible geopolitical scenarios, and the scope should include nonbanks that can amplify shocks. The other options reduce buffers or raise concentration.

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