CAPITAL CHANGE FOR OPERATIONAL RISK
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Risk Management (Elective) — CAIIB.
One-liners from this chapter
Free sample — 8 of 66 rapid-fire Q&A cards.
What is the definition of operational risk under Basel II/III?
Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events, including legal risk but excluding strategic and reputational risk.
What is the beta factor assigned to Corporate Finance under the Standardized Approach?
18% beta factor applies to Corporate Finance business line.
What are the three approaches prescribed under Basel II for calculating capital charge for operational risk?
The three approaches are the Basic Indicator Approach (BIA), the Standardized Approach (SA), and the Advanced Measurement Approach (AMA), in increasing order of risk sensitivity and sophistication.
What beta factor is assigned to Trading & Sales under the Standardized Approach?
18% beta factor applies to Trading & Sales business line.
What is the alpha factor used in the Basic Indicator Approach for operational risk capital?
The alpha (α) factor under BIA is 15%, meaning the capital charge equals 15% of the average annual gross income over the preceding three years.
What beta factor applies to Agency Services under the Standardized Approach?
15% beta factor is assigned to Agency Services.
How is the capital charge calculated under the Basic Indicator Approach?
Under BIA, the capital charge = α × average positive annual gross income over the previous three years, where α = 15% as set by the Basel Committee.
What beta factor is assigned to Asset Management under the Standardized Approach?
12% beta factor applies to Asset Management business line.
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