Read the following passage carefully and answer the questions based on the passage:
"Bank failures raise serious concerns about supervisory oversight." The case studies of Credit Suisse and Silicon Valley Bank highlight the deficiencies in supervisory supervision. In many instances, supervisors are hesitant to come into conflict with bank management when weaknesses are identified, preferring to do nothing rather than take corrective action at a point in time when key issues are building into a problem.
Regulators must adopt an attitude change in which they place more emphasis on the results rather than the details. Overemphasis on trivial matters might lead regulators to overlook more fundamental issues, such as whether financial institutions have adequate capital in case of a shock. Regulating requirements must be simplified. Complex regulation requirements in relation to capital may overlook systemic risk in their approaches when stress tests result in activities gravitating towards less heavily regulated institutions in the non-bank sector.
Improved supervisory and bank communications would promote better supervision as a tool for managing risk. Recommendations include being up front about supervisory goals, openness to change within the bank organization, and increased transparency in supervisory contracts as a way of promoting swift problem resolution. These would aid shareholders as well as the overall economy. In conclusion, rather than pursuing a micro-management strategy, a move towards a clearly defined regulation that supports positive incentives is what is needed to ensure that banks behave within frameworks that promote financial stability.
Why are supervisors often slow to act when banks have problems?
- (a)They use a secret strategy to keep their contracts private.
- (b)They are confused because modern bank rules are too simple.
- (c)They do not have the legal power to stop a financial crash.
- (d)They prefer to avoid conflict instead of fixing risks early.
Answer
Why
Correct — D. The deciding sentence: 'In many instances, supervisors are hesitant to come into conflict with bank management when weaknesses are identified, preferring to do nothing rather than take corrective action at a point in time when key issues are building into a problem.'
Hesitant to come into conflict → avoid conflict.
Preferring to do nothing rather than take corrective action → instead of fixing.
When key issues are building → early, option (d).
Why the others are wrong
- (a)They use a secret strategy to keep their contracts private. — Transparency in supervisory contracts is one of the passage's recommendations for the future, not a reason for delay. Nothing mentions a secret strategy.
- (b)They are confused because modern bank rules are too simple. — The passage says the opposite: rules are too complex, and 'Regulating requirements must be simplified'. Simple rules are never blamed for confusion.
- (c)They do not have the legal power to stop a financial crash. — The passage never mentions legal power. 'Preferring to do nothing' describes a choice, so the delay is about will, not authority.
Concept
A detail question asks for something the passage states. The answer paraphrases one sentence, so find that sentence first and match its parts.
Here the reason sits in paragraph one: supervisors avoid conflict with bank management and choose inaction while problems are still building.
Two wrong options borrow from elsewhere — 'contracts' from paragraph three, or paragraph two's complaint about complex rules turned upside down. The third, legal power, is not in the passage at all.
Key facts
- The passage's case studies are Credit Suisse and Silicon Valley Bank. In March 2023 Silicon Valley Bank failed, and UBS agreed to take over Credit Suisse.
- 'Preferring to do nothing rather than take corrective action' presents the delay as a choice.
- Corrective action means steps taken to fix a problem once it is found.
Study next
Common traps
- Choosing option (a) because 'contracts' and 'transparency' appear in the passage — they are recommendations, not the cause of delay.
- Choosing option (c) from outside assumptions about regulators' powers — the passage gives preference, not powerlessness, as the reason.
The same sentence matching decides 12 Sep 2025, 09:00, English Q.15: its key, 'Through experience and reflection', restates that passage's 'earned through trial, failure, reflection'.
Related PYQs
No directly related past PYQ was found.