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

Which of the following is an option offered within Basel II Pillar 1 for measuring operational risk capital, ordered from simplest to most advanced?

Basel II's operational risk options, from simplest to most advanced, are the Basic Indicator Approach, the Standardised Approach and the Advanced Measurement Approaches. The IRB approaches apply to credit risk, not operational risk.

  1. ABasic Indicator Approach, Standardised Approach, Advanced Measurement ApproachesCorrect
  2. BStandardised Approach, IRB Foundation, IRB Advanced
  3. CBasic Indicator Approach, Internal Models Approach, Leverage Approach
  4. DValue-at-Risk Approach, Stressed Approach, Scorecard Approach

Explanation

Basel II offers three operational risk methods: the Basic Indicator Approach (a fixed percentage of gross income), the Standardised Approach (business-line percentages of gross income), and Advanced Measurement Approaches using internal models. IRB options relate to credit risk.

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