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.
The tone with which the author approaches the current situation of "complex regulation" is best described as:
- (a)Hopeful that it will eventually help find hidden money problems.
- (b)Uninterested in how these rules change where money is stored.
- (c)Critical because complicated rules can actually cause more risk.
- (d)Impressed by how much attention supervisors pay to tiny details.
Answer
Why
Correct — C. The author's verdict on complex rules: 'Regulating requirements must be simplified.'
The reason follows: '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.'
That demand is criticism, and risk that complex rules overlook, while activity drifts to less heavily regulated institutions, is the 'more risk' → option (c).
Why the others are wrong
- (a)Hopeful that it will eventually help find hidden money problems. — Complex rules 'may overlook systemic risk', so the author expects them to miss problems, not find them. Nothing in the passage is hopeful about them.
- (b)Uninterested in how these rules change where money is stored. — The author discusses exactly this: activities gravitating towards less heavily regulated institutions. Tracing where activity moves is the opposite of being uninterested.
- (d)Impressed by how much attention supervisors pay to tiny details. — The author warns that 'Overemphasis on trivial matters might lead regulators to overlook more fundamental issues'. That is a complaint about attention to detail, not admiration.
Concept
Read tone from the author's words of judgment. 'Must be simplified' demands change, and 'may overlook systemic risk' names the harm.
So the attitude is criticism with a reason: complex rules miss risk, and the stress-test example shows activity moving to less heavily regulated institutions.
Options that are hopeful, uninterested or impressed each run against one of those phrases.
Key facts
- 'Must' in 'must be simplified' marks a demand for change — a sign of a critical tone.
- Systemic risk is risk to the financial system as a whole rather than to a single institution.
- The passage links overemphasis on trivial matters to overlooking 'more fundamental issues', such as adequate capital.
Study next
Common traps
- Choosing option (d) because the passage talks about details at length — it criticises that focus.
- Choosing option (b) because the author uses no emotional words — calm criticism is still criticism.
The MGNREGA passage in this paper also carries a tone item, 19 Jan 2026, 11:00 AM, English Q.32, keyed 'Cautiously critical'. In Tier-I, 18 Sep 2025, 12:30, English Q.20 keys 'Reflective and critical'.
Related PYQs
No directly related past PYQ was found.