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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 supervisor is assessing the financial stability implications of a severe but plausible cyber event that disables a systemically important payment system for two days. Which transmission channel is most directly relevant to financial stability?

The key channel is settlement failure: when a major payment system is disabled, participants cannot meet obligations, liquidity becomes trapped and confidence erodes, so stress propagates to other institutions and markets, threatening financial stability.

  1. AFailure of participants to settle obligations, leading to liquidity strains and loss of confidence that propagate to other institutionsCorrect
  2. BA temporary rise in the bank's advertising costs
  3. CA reduction in the bank's tax liability
  4. DA change in the accounting treatment of goodwill

Explanation

Payment disruption blocks settlement, trapping liquidity and creating uncertainty about counterparties, which spreads stress across the system. The other options have no meaningful stability transmission.

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