FRM Part II · FRM Exam Part II · Digital Resilience and Financial Stability: The Quest for Policy Tools in the Financial Sector
A regulator considers using capital requirements as a tool against cyber risk. Which is the strongest argument that capital alone is an insufficient macroprudential tool for cyber risk?
Capital absorbs financial losses but does not restore operations or stop loss of confidence from spreading. A severe cyber event can disrupt critical services and propagate across institutions, so capital must be complemented by recovery, response, testing and dependency-management tools.
- ACapital cannot be held against operational losses under any framework
- BCyber losses are always small relative to credit losses
- CA cyber event can impair operations and confidence and disrupt critical services, so capital absorbs financial losses but does not restore functioning or prevent contagionCorrect
- DCapital requirements apply only to non-bank institutions
Explanation
Capital absorbs losses but cannot by itself keep payment or settlement services running or stop loss of trust spreading. Operational risk capital does exist, and cyber losses can be severe, so the other claims are false. Resilience, recovery and response tools are needed alongside capital.
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