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OPERATIONAL RISK AND INTEGRATED RISK
What is the Basel Committee's definition of operational risk?
Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events. This definition includes legal risk but excludes strategic and reputational risk.
What is the Gross Income indicator used in the Basic Indicator Approach for operational risk?
Average annual gross income over the previous three years.
Which three pillars of Basel II framework address operational risk capital requirements?
Pillar 1 prescribes minimum capital requirements for operational risk, Pillar 2 requires supervisory review of internal capital adequacy, and Pillar 3 mandates market discipline through public disclosures.
What alpha value does the Basic Indicator Approach use to calculate operational risk capital?
15% of average annual gross income.
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