FRM Part II · FRM Exam Part II · High-level Summary of Basel III Reforms
A bank has a Business Indicator (BI) of EUR 500 million. Under the Basel III standardised approach, BI components are applied with marginal coefficients of 12% for BI up to EUR 1 billion, 15% for BI between EUR 1 billion and EUR 30 billion, and 18% above EUR 30 billion. What is the Business Indicator Component (BIC)?
The BIC is EUR 60 million. The bank's Business Indicator of EUR 500 million lies wholly within the first bucket, up to EUR 1 billion, so the 12% marginal coefficient applies to the entire amount, giving 12% times 500 million.
- AEUR 75 million
- BEUR 60 millionCorrect
- CEUR 90 million
- DEUR 50 million
Explanation
BI of 500 million falls entirely in the first bucket, so BIC = 12% x 500 = 60 million. Using 15% would give 75 million, which wrongly applies the second bucket's coefficient to the whole amount.
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