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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

Several banks in a jurisdiction rely on the same cloud provider for core payment processing. A supervisor wants a tool that directly addresses the resulting concentration risk at the system level. Which measure is most appropriate?

The most appropriate tool is mapping critical third-party dependencies and requiring exit plans, substitutability or direct oversight of the provider. This addresses the shared-provider concentration that creates correlated failure, whereas a generic countercyclical buffer relates to credit cycles and does not reduce operational concentration.

  1. ARequiring each bank to increase its general countercyclical capital buffer uniformly
  2. BMapping critical third-party dependencies and imposing exit plans, substitutability requirements or oversight of the providerCorrect
  3. CRestricting banks from publishing incident data
  4. DRaising each bank's deposit insurance premium

Explanation

Dependency mapping with exit and substitutability requirements, or direct oversight of critical providers, targets the shared-provider channel. A uniform countercyclical buffer is tied to credit cycles, not operational concentration, so it does not address the source of the risk.

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