FRM Part I · FRM Exam Part I · Operational Risk
Under the Basel standardised approach for operational risk (the post-2017 framework), the minimum operational risk capital requirement of a bank is built from which two components?
Operational risk capital under the revised Basel standardised approach equals the business indicator component multiplied by the internal loss multiplier. The BIC reflects the size of the bank's business, while the ILM adjusts for its own historical operational losses. The older 15% gross-income rule and the AMA no longer apply.
- ABusiness indicator component and internal loss multiplierCorrect
- BGross income multiplied by a fixed 15% alpha, with no loss-history adjustment
- CAdvanced measurement approach model output and a scaling factor of 1.06
- DValue-at-risk at 99.9% of the bank's aggregate loss distribution
Explanation
The Basel standardised approach computes capital as the business indicator component (BIC), based on the bank's business indicator and marginal coefficients, multiplied by the internal loss multiplier (ILM), which reflects the bank's historical losses. The 15% alpha of gross income describes the older Basic Indicator Approach. The AMA was withdrawn by the revised framework.
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