FRM Part I · FRM Exam Part I · Operational Risk
Under the Advanced Measurement Approach (AMA) of Basel II, which feature distinguishes it from the Basic Indicator and Standardised approaches?
The AMA lets a bank use its own internal model to estimate operational risk capital, calibrated to a 99.9% confidence level over one year. It draws on internal and external loss data, scenario analysis and control factors, unlike the BIA and TSA, which apply fixed percentages to gross income.
- ACapital is based on the bank's own internal model, with a 99.9% one-year confidence levelCorrect
- BCapital is a fixed percentage of average gross income across business lines
- CCapital is set by regulators using a business indicator and marginal coefficients
- DCapital is based on the bank's market risk VaR at 99% over ten days
Explanation
The AMA allowed banks to use internal measurement systems, with regulatory soundness standard of a 99.9% confidence level over one year, using internal and external data, scenario analysis and business environment factors. Fixed percentages of gross income describe the BIA and TSA, and the business indicator method is the later standardised approach.
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