Answer: EUR 150 million

The correct operational risk capital that the bank should report under the SMA is EUR 150 million. This is determined by applying the Business Indicator Component calculation for Bucket 2, which corresponds to the BI range of EUR 1 billion to EUR 30 billion. Given that the Business Indicator (BI) is EUR 1,200 million and the Internal Loss Multiplier is 1, the calculation is as follows: SMA operational risk capital (Bucket 2) = BIC * 1 = EUR 120 million + 0.15(BI - EUR 1 billion) = EUR 120 million + 0.15(EUR 1,200 million - EUR 1,000 million) = EUR 120 million + 0.15(EUR 200 million) = EUR 120 million + EUR 30 million = EUR 150 million. This calculation adheres to the revised Standardized Measurement Approach, where operational risk capital is the product of the Business Indicator Component and the Internal Loss Multiplier. The Business Indicator Component is derived from the Business Indicator, which includes positive values of its components to avoid negative contributions to the capital charge and includes income statement items related to operational risk activities.

Author: LeetQuiz Editorial Team