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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 designing a framework to limit systemic risk from the concentration of many banks on a single cloud provider. Which policy tool is most directly aimed at this specific concern?

Direct oversight or designation of critical third-party providers, plus exit and substitutability requirements, targets cloud concentration. The risk is a common operational dependency across institutions, which capital, liquidity or leverage buffers do not address because they absorb financial losses rather than prevent shared service failure.

  1. ARaising the minimum CET1 ratio for all banks equally
  2. BDirect oversight or designation of critical third-party providers, combined with exit and substitutability requirements for financial institutionsCorrect
  3. CRequiring banks to hold more high-quality liquid assets against deposit outflows
  4. DImposing a leverage ratio buffer on global systemically important banks

Explanation

Cloud concentration is a third-party dependency risk, which is addressed by oversight of critical providers and requirements for exit strategies and substitutability. Capital and liquidity buffers address financial losses and funding, not a common operational failure point.

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