FRM Part II · FRM Exam Part II · Global Financial Stability Report, April 2025, Chapter 2 (Geopolitical Risk)
A supervisor reviewing financial stability after a geopolitical escalation is considering how to reduce amplification of shocks through nonbank financial institutions. Which measure is most consistent with the policy implications discussed in the IMF's April 2025 GFSR analysis?
The most consistent measure is to strengthen monitoring and liquidity risk management of nonbank institutions and improve data on cross-border exposures. This helps contain amplification of geopolitical shocks, whereas removing liquidity tools, relaxing buffers or discouraging scenario analysis would increase vulnerability.
- AEliminating liquidity management tools at open-ended funds to encourage fast redemptions
- BStrengthening monitoring and liquidity risk management of nonbank institutions and enhancing data on cross-border exposuresCorrect
- CRelaxing capital buffers for banks during periods of elevated risk
- DDiscouraging firms from conducting scenario analysis to avoid market panic
Explanation
Policy implications focus on vigilance: better monitoring, stronger liquidity risk management of nonbanks and better data on cross-border exposures help contain amplification. Removing liquidity tools encourages runs, relaxing buffers reduces resilience, and discouraging scenario analysis weakens preparedness.
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