OPERATIONAL RISK AND INTEGRATED 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 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.
What are the three measurement approaches for operational risk capital under Basel II?
The three approaches are the Basic Indicator Approach (BIA), the Standardised Approach (SA), and the Advanced Measurement Approach (AMA), progressing from simple to complex in sophistication.
What is the beta factor assigned to retail banking under the Standardised Approach?
12% beta factor for retail banking business line.
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 annual gross income over the previous three years, excluding years with negative or zero gross income.
What is the beta factor assigned to corporate finance under the Standardised Approach?
18% beta factor for corporate finance.
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