It is a proxy or how good you are at other development tasks. I think it's a bad proxy. Mostly because I've read and studied CLRS at school. And I don't use the fun parts much in the wild. I'm also not expected to be able to recall things that you can look up.

One 'slightly' shameful things I noted about myself reading that list of system design interview questions is that I actually don't use most of those systems or know their features well enough. Other than YT of course.

I feel like the simpler interview process would be to just take a person and do a hand wavy system design interview. Then if they pass, hire em on probation for 2 months and slam them with work. They get paid, you maybe get a feel for them.

They sink or swim. You keep em' or toss em' away at the end of the two months.