Skip to content

FRM Part II · FRM Exam Part II · Capital Regulation Before the Global Financial Crisis

Which of the following is a required element of a bank's Advanced Measurement Approach (AMA) model under Basel II?

An AMA model must capture potentially severe tail losses, consistent with a 99.9% confidence level over a one-year horizon. It must also combine internal loss data, external data, scenario analysis and business environment and control factors, rather than rely on gross income or external data alone.

  1. AThe measure must capture potentially severe tail events at a 99.9% confidence level over a one-year horizonCorrect
  2. BThe measure must be based on a five-year holding period at 95% confidence
  3. CThe model must use only external loss data to avoid bias
  4. DThe model must be based only on gross income by business line

Explanation

Basel II requires AMA banks to demonstrate that their approach captures potentially severe tail loss events, equivalent to a 99.9% soundness standard over one year. Models must combine internal data, relevant external data, scenario analysis and business environment and internal control factors, so relying on external data only is wrong. Gross income by business line is the Standardised Approach basis.

Did you get it right without looking?

One question tells you little. A timed set on Capital Regulation Before the Global Financial Crisis shows your real accuracy, how long you take and where you lose marks.

Practise Capital Regulation Before the Global Financial CrisisFree diagnostic mock

More Capital Regulation Before the Global Financial Crisis questions