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Answer: EUR150 million
The correct operational risk capital that the bank should report under the Standardized Measurement Approach (SMA) is EUR 150 million. This is determined by applying the Business Indicator (BI) of EUR 1,200 million to the appropriate BI Component formula from the table provided. Since the BI falls into the second bucket (EUR 1 billion to EUR 30 billion), the calculation is as follows: 1. Start with the fixed amount for the second bucket: EUR 120 million. 2. Apply the variable component for the second bucket: 0.15 * (BI - EUR 1 billion). 3. Calculate the variable component: 0.15 * (EUR 1,200 million - EUR 1,000 million) = 0.15 * EUR 200 million = EUR 30 million. 4. Add the fixed and variable components to find the total operational risk capital: EUR 120 million + EUR 30 million = EUR 150 million. The Internal Loss Multiplier is given as 1, so the Business Indicator Component (BIC) is multiplied by this multiplier to arrive at the final operational risk capital of EUR 150 million.
Author: LeetQuiz Editorial Team
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A risk manager in the operations division of a bank has been assigned the task of determining the operational risk capital, adhering to the Standardized Measurement Approach (SMA) as stipulated by the Basel Committee in their March 2016 guidelines. The following data has been supplied by the treasury department as per the SMA requirements:
Business Indicator (Bl): EUR 1,200 million Internal Loss Multiplier: 1
To aid in this calculation, the manager also consults the Business Indicator buckets within the Business Component as detailed in the table below:
| Bucket | BI Range | BI Component |
|---|---|---|
| 1 | EUR 0 to EUR 1 billion | 0.12*BI |
| 2 | EUR 1 billion to EUR 30 billion | EUR 120 million + 0.15(BI - EUR 1 billion) |
| 3 | Higher than EUR 30 billion | 0.18(BI -EUR 30 billion) |
What is the appropriate operational risk capital that the bank must disclose under the SMA?
A
EUR120million
B
EUR150 million
C
EUR158million
D
EUR180million
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