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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 reviewing digital resilience notes that a cyber incident at one bank could spread to others. Which transmission channel is MOST characteristic of cyber risk contagion in finance, as opposed to traditional credit contagion?

Cyber contagion mainly spreads through interconnected IT systems, shared third-party vendors and payment links, with loss of confidence amplifying the disruption. Credit defaults, common asset price falls and collateral declines are financial channels, not the technology-based propagation distinctive to cyber incidents.

  1. ACounterparty losses on defaulted loans
  2. BInterconnected IT systems, shared vendors and payment links that propagate operational disruption and loss of confidenceCorrect
  3. CMark-to-market losses on common bond holdings
  4. DDeclines in collateral values in the housing market

Explanation

Cyber contagion travels through shared technology, vendors and payment infrastructure, plus confidence effects. The other options describe credit, market and collateral channels typical of financial rather than operational shocks.

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