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FRM Part II · FRM Exam Part II · Basel III: Finalising Post-crisis Reforms

A bank has a three-year average Business Indicator of €800 million. Its national supervisor has not exercised discretion to require use of loss data for banks in the lowest BI bucket. What is the bank's SMA operational risk capital requirement?

Capital is €96 million. A Business Indicator of €800 million falls in the first bucket, where the coefficient is 12%, and without national discretion the internal loss multiplier is fixed at 1. Loss history therefore does not affect the requirement, and capital equals the BIC.

  1. A€96 millionCorrect
  2. B€120 million
  3. C€1,200 million
  4. DAn amount that depends on its ten-year loss history

Explanation

A BI of €800m is below €1bn, so it is in bucket 1 with a 12% coefficient: BIC = €96m. Absent national discretion, the internal loss multiplier is set to 1 for bucket 1 banks, so capital = €96m. €120m uses 15%, and €1,200m is the RWA figure rather than capital.

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