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FRM Part II · FRM Exam Part II · High-level Summary of Basel III Reforms

A bank has a three-year average Business Indicator (BI) of EUR 600 million. Under the Basel III standardised approach, BI component marginal coefficients are 12% for BI up to EUR 1 billion, 15% for BI between EUR 1 billion and 30 billion, and 18% above EUR 30 billion. Ignoring the internal loss multiplier, what is the BI component?

The BI component is EUR 72 million, because the bank's EUR 600 million Business Indicator lies wholly in the lowest bucket, up to EUR 1 billion, where the marginal coefficient is 12%. Multiplying 12% by 600 million gives 72 million.

  1. AEUR 72 millionCorrect
  2. BEUR 90 million
  3. CEUR 108 million
  4. DEUR 60 million

Explanation

BI of 600 million falls in the first bucket (up to EUR 1 billion). BIC = 12% x 600 = EUR 72 million. Using 15% gives 90, which wrongly applies the second bucket coefficient.

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