Explanation:
Under the Basel II/III standardized approach for operational risk, different business lines have different beta factors (capital multipliers) applied to their gross income. The beta factors are:
Calculation for each option:
Since each business line contributes equally (one-third) to total gross income, the capital charge will be highest for the business mix with the highest average beta factor. Option A has the highest average beta factor of 18%, making it the correct answer.
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Q-61. A bank uses the standardized approach (SA) to determine their capital charge for operational risk under Basel II (or Basel III). The bank has three (3) business lines and each business line contributes one-third toward the total gross income. For a given total gross income, which business mix will produce the largest capital charge?
A
Corporate finance; trading and sales; payment and settlement
B
Retail banking; retail brokerage; and asset management
C
Commercial banking; agency services; asset management
D
Retail banking; Commercial banking; and Payment and settlement
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