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FRM Part II · FRM Exam Part II · The Financial Stability Implications of Artificial Intelligence

A supervisor assesses systemic implications of AI-related cyber risk. Which scenario best illustrates how AI could amplify financial stability risk through concentration in third-party providers?

Heavy dependence of many institutions on the same AI model or cloud provider creates a common point of failure. A cyberattack or outage at that provider could disrupt many firms simultaneously, making operational risk correlated and systemic rather than idiosyncratic.

  1. AEach bank trains its own small model on private data, so failures are uncorrelated
  2. BMany institutions depend on the same AI model provider, and a compromise or outage of that provider disrupts many firms at onceCorrect
  3. CA bank replaces a single AI vendor with an in-house rules-based system
  4. DA fintech uses AI only for internal marketing copy

Explanation

Reliance on a few providers of models, data or cloud infrastructure creates common points of failure, so a cyber incident or outage can hit many firms simultaneously, creating correlated operational stress. The other options describe diversification or negligible exposure.

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