Answer: income and historical operational risk losses.

## Explanation Under the Basel III reforms for operational risk capital requirements, the new standardized approach uses two key components: 1. **Business Indicator (BI)** - This represents the bank's income and is calculated as the average of three components: - Interest, leases, and dividend income - Services income - Financial income 2. **Internal Loss Multiplier (ILM)** - This incorporates the bank's historical operational risk losses through the Loss Component (LC), which is based on 10 years of historical operational loss data. The formula for operational risk capital under Basel III is: **Operational Risk Capital = BI Component × ILM** Where: - **BI Component** = Business Indicator × Marginal coefficients - **ILM** = function of Loss Component and BI Component Therefore, the capital requirements are determined by the bank's **income** (through the Business Indicator) and **historical operational risk losses** (through the Internal Loss Multiplier). This represents a significant change from the previous Advanced Measurement Approaches (AMA) and reflects a more standardized methodology that combines business scale (income) with loss experience.

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