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Answer: EUR 96 million
## Explanation Under the Standardized Measurement Approach (SMA), the operational risk capital is calculated based on the Business Indicator (BI) using the specified buckets. **Given:** - Business Indicator (BI) = EUR 800 million **Analysis:** - EUR 800 million falls within **Bucket 1** (EUR 0 to EUR 1 billion) - For Bucket 1, the formula is: **0.12 × BI** **Calculation:** - Operational Risk Capital = 0.12 × EUR 800 million - Operational Risk Capital = EUR 96 million **Verification:** - EUR 800 million is less than EUR 1 billion, so it correctly falls in Bucket 1 - The calculation uses the simple 12% multiplier for this range Therefore, the correct operational risk capital is **EUR 96 million**, which corresponds to **Option B**.
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An operational risk manager is asked to report a bank's operational risk capital under the Standardized Measurement Approach (SMA) proposed by the Basel Committee in March 2016. The treasury department produces the following data for the bank, calculated according to the SMA guidelines:
In addition, the manager uses the Business Indicator buckets in the Business Component presented in the table below:
| Bucket | BI Range | BI Component |
|---|---|---|
| 1 | EUR 0 to EUR 1 billion | 0.12*BI |
| 2 | EUR 1 billion to EUR 30 billion | EUR 120 million + 0.15(BI – EUR 1 billion) |
| 3 | Higher than EUR 30 billion | EUR 4.47 billion + 0.18(BI – EUR 30 billion) |
What is the correct operational risk capital that the bank should report under the SMA?
A
EUR 90 million
B
EUR 96 million
C
EUR 108 million
D
EUR 120 million
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