FRM Part II · FRM Exam Part II · Capital Regulation Before the Global Financial Crisis
A bank using the Basel II Basic Indicator Approach has annual gross income of 100, 120 and 80 (EUR million) over the last three years. The alpha factor is 15%. What is the operational risk capital charge?
The charge is 15.0 million euros. The Basic Indicator Approach multiplies the three-year average gross income, here 100, by alpha of 15 percent. Using the latest year alone or the highest year gives different, incorrect values.
- A12.0Correct
- B15.0
- C18.0
- D13.5
Explanation
The charge is alpha times average positive gross income over three years. Average = (100+120+80)/3 = 100. Capital = 15% × 100 = 15.0. Option 15.0 is therefore correct, not 12.0.
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