Operational and integrated risk
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Bank Financial Management — CAIIB.
One-liners from this chapter
Free sample — 8 of 65 rapid-fire Q&A cards.
What is operational risk as defined by Basel II?
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events. It includes legal risk but excludes strategic and reputational risk.
What is 'people risk' as a subcategory of operational risk?
Risk of loss from human error, fraud, or misconduct.
Which three approaches does Basel II prescribe for measuring operational risk capital?
Basel II prescribes the Basic Indicator Approach (BIA), the Standardised Approach (SA), and the Advanced Measurement Approach (AMA) for calculating operational risk capital charge.
What is 'process risk' in the context of operational risk?
Risk from failed or inadequate internal processes and procedures.
How is the capital charge calculated under the Basic Indicator Approach for operational risk?
Under BIA, the capital charge is 15% (alpha factor) of the average positive annual gross income over the preceding three years.
What is 'systems risk' under operational risk classification?
Risk from failures in IT systems, software, or technology infrastructure.
What is the alpha factor in the Basic Indicator Approach for operational risk?
The alpha factor is 15%, set by the Basel Committee, representing the industry-wide relationship between regulatory capital and the indicator (gross income).
What is 'external events risk' in operational risk?
Risk from floods, theft, vandalism, or external fraud outside bank control.
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