Answer: The standardized approach used by banks in calculating operational risk capital allows for different beta factors to be assigned to different business lines.

## Explanation Let's analyze each option: **A. Incorrect**: Economic capital should cover **unexpected losses**, not expected losses. Expected losses should be covered by provisions and pricing, while economic capital covers unexpected losses. **B. Incorrect**: While loss severity is often modeled with heavy-tailed distributions (like lognormal, Weibull, or Pareto), loss frequency is typically modeled with Poisson or negative binomial distributions, not lognormal distributions. **C. Incorrect**: Operational loss data from vendors tends to be biased towards **large losses** rather than small losses, as small losses are often not reported or captured in external databases. **D. Correct**: The standardized approach does indeed assign different beta factors to different business lines, reflecting the varying operational risk profiles across different banking activities. **Correct Answer: D**

Author: LeetQuiz Editorial Team