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FRM Part II · FRM Exam Part II · Introduction to Operational Risk and Resilience

A bank's BIC is EUR 200 million. Its ILM is 1.2. Operational risk RWA is derived from the minimum capital requirement. What are the capital requirement and the RWA?

Capital is BIC times ILM, 200 x 1.2 = EUR 240 million. Operational risk RWA is capital multiplied by 12.5, giving EUR 3,000 million.

  1. ACapital EUR 240 million; RWA EUR 3,000 millionCorrect
  2. BCapital EUR 200 million; RWA EUR 2,500 million
  3. CCapital EUR 240 million; RWA EUR 1,920 million
  4. DCapital EUR 240 million; RWA EUR 2,500 million

Explanation

SMA capital = BIC x ILM = 200 x 1.2 = EUR 240 million. RWA = capital x 12.5 = 240 x 12.5 = EUR 3,000 million. Using 200 x 12.5 ignores the ILM; dividing by 8% gives the same 3,000 only by coincidence of 12.5, so 2,500 or 1,920 reflect errors.

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