FRM Part II · FRM Exam Part II · Digital Resilience and Financial Stability: The Quest for Policy Tools in the Financial Sector
A supervisor reviewing the sector finds that 60% of banks rely on the same cloud provider for core processing. Which conclusion is most consistent with a digital resilience view of systemic risk?
A shared cloud provider is a single point of failure that could cause correlated outages across many banks. Separate contracts do not remove this concentration, so authorities need sector-wide mapping of dependencies and assessment of substitutability, rather than relying only on firm-level measures.
- AConcentration risk is low because each bank has its own contract with the provider
- BThe cloud provider's failure is a single point of failure that could cause correlated outages, so sector-level mapping of dependencies and substitutability is neededCorrect
- CFirm-level capital is sufficient to remove the sector exposure
- DDependencies on the provider matter only if the provider is itself a regulated bank
Explanation
Separate contracts do not remove a shared dependency; a provider outage hits all clients at once. Policy tools therefore focus on mapping dependencies, testing substitutability and oversight of critical providers. Capital alone cannot restore service, and regulatory status of the provider does not remove the dependency.
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