FRM Part II · FRM Exam Part II · Digital Resilience and Financial Stability: The Quest for Policy Tools in the Financial Sector
A regional bank migrates most of its core processing to a single cloud provider to cut costs. From a financial stability perspective, which risk is most directly heightened by this concentration across the sector if many institutions make the same choice?
Concentration risk is most heightened, because many institutions relying on the same cloud provider share a single point of failure. An outage or cyber incident at that provider could disrupt many firms simultaneously, turning an operational problem into a sector-wide financial stability concern.
- AConcentration risk, because a failure at one provider could disrupt many institutions at onceCorrect
- BBasis risk, because cloud costs and bank revenues are imperfectly correlated
- CSettlement risk, because cloud usage changes the currency of payments
- DModel risk, because cloud providers set the bank's internal credit ratings
Explanation
Common reliance on one third-party provider creates a single point of failure that can transmit an operational disruption across many firms simultaneously. The other options describe risks unrelated to provider concentration.
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