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: **Option A: Incorrect** - Economic capital is meant to cover unexpected losses, not expected losses. Expected losses should be covered by provisions and pricing. Economic capital covers losses at a specific confidence level (e.g., 99.9%), not worst-case scenarios. **Option B: Incorrect** - Loss frequency is typically modeled with Poisson or negative binomial distributions, not lognormal distributions. Loss severity is often modeled with heavy-tailed distributions like lognormal, Weibull, or Pareto distributions. **Option C: Incorrect** - Operational loss data from vendors is actually biased toward large losses, not small losses. Small losses are often underreported or not recorded, while large losses receive more attention and are more likely to be included in databases. **Option D: Correct** - Under the Standardized Approach for operational risk capital calculation, banks assign different beta factors (risk weights) to different business lines based on their inherent operational risk levels. This allows for differentiation in capital requirements across business activities. The correct answer is D because it accurately describes the standardized approach methodology for operational risk capital calculation.

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