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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 regional bank's risk committee is reviewing why supervisors increasingly treat cyber incidents as a potential threat to financial stability rather than only a firm-level operational loss. Which feature of the financial system best explains this view?

Supervisors see cyber incidents as systemic because common technology providers and interconnected networks let a single disruption spread across many institutions simultaneously, producing correlated failures and loss of confidence, which individual firm capital cannot fully absorb.

  1. ACyber losses are always larger than credit losses at individual banks
  2. BCommon technology providers and interconnected networks can transmit a single disruption across many institutions at onceCorrect
  3. CCyber incidents affect only retail customers and not wholesale markets
  4. DCyber risk is fully diversified away when institutions hold more capital

Explanation

Shared service providers, payment systems and network links mean one disruption can hit many firms simultaneously, creating correlated failures and loss of confidence. Cyber losses are not always larger than credit losses, and capital alone does not remove the contagion channel.

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