FRM Part II · FRM Exam Part II · Digital Resilience and Financial Stability: The Quest for Policy Tools in the Financial Sector
A supervisor wants a policy tool that addresses the risk that many financial institutions rely on the same cloud provider, so that one outage could disrupt numerous firms at once. Which approach is most directly aimed at this concentration risk?
Oversight of critical third-party providers with concentration monitoring and exit planning is the best fit. Common reliance on one cloud provider creates correlated operational failure, and these tools address that directly. Capital buffers, loan-to-value limits and repo haircuts target credit, housing and funding risks instead.
- ARaising the countercyclical capital buffer for all banks
- BDirect oversight of critical third-party providers combined with concentration monitoring and exit planning requirementsCorrect
- CTightening loan-to-value limits on residential mortgages
- DRequiring higher haircuts on repo collateral
Explanation
Shared dependence on a single ICT provider creates correlated operational failure across firms. Tools aimed at this include oversight of critical third parties, monitoring concentration and requiring exit and substitutability plans. The other options target credit cycle, housing and funding market risks, not ICT concentration.
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