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

Under the Basel III finalised framework, which approach is the only one banks use to calculate minimum regulatory capital for operational risk, replacing the Basic Indicator, Standardised and Advanced Measurement approaches?

The Standardised Measurement Approach is the single method for operational risk capital under finalised Basel III. It replaced the Basic Indicator, Standardised and Advanced Measurement approaches, mainly because internal models gave inconsistent and poorly comparable capital results across banks.

  1. AThe Standardised Measurement Approach (SMA)Correct
  2. BThe Advanced Measurement Approach with internal models
  3. CThe Basic Indicator Approach using 15% of gross income
  4. DThe Alternative Standardised Approach

Explanation

Basel III reforms replaced all earlier operational risk approaches with a single non-model-based Standardised Measurement Approach. The AMA was withdrawn because internal models produced inconsistent and hard-to-compare capital outcomes. The Basic Indicator Approach is a superseded approach.

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