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

Which statement best describes why a bank uses a standard operational risk event taxonomy?

A standard taxonomy allows losses and risks to be classified consistently, so they can be aggregated, reported and compared across business lines and with peers. It does not remove the need for scenarios, imply independence between events, or set capital by summing categories.

  1. AIt enables consistent loss data classification, aggregation and comparison across business lines and institutionsCorrect
  2. BIt eliminates the need for scenario analysis because all losses fit categories
  3. CIt guarantees that operational losses are uncorrelated across event types
  4. DIt ensures that operational risk capital equals the sum of category losses

Explanation

A common taxonomy supports consistent categorization of loss events, enabling aggregation, benchmarking and reporting. It does not replace scenario analysis, imply independence among categories, or determine capital mechanically.

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