Financial Risk Manager Part 2
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Each of the following is true about the Standardized Approach (SA) to operational risk under Basel III except which is false?
A
Whereas the Basic Indicator Approach (BIA) uses Gross Income for the whole institution as a proxy for the scale of business operations, the standardized approach (SA) calculates the capital charge for each business line by multiplying its gross income by a factor (denoted beta) assigned to that business line.
B
The beta factor in the Standardized Approach (SA) serves as a proxy for the industrywide relationship between the operational risk loss experience for a given business line and the aggregate level of gross income for that business line.
C
Under the standardized approach (SA), business units that fail to provision expected operational losses must calibrate their risk charge based on the unexpected loss at 99.99% confidence level (i.e., rather than 99.9%) over a one-year horizon.
D
A national supervisor can allow a bank to use the Alternative Standardized Approach (ASA) which replaces gross income with loans and advances for retail and commercial banking business lines.