Explanation:
When a bank transitions from the Basic Indicator Approach (BIA) to the Standardized Approach (TSA) under Basel II for operational risk capital calculation, the key change is:
Option A is correct - Under the Standardized Approach, the bank must break down its operations into business lines defined by the Basel Committee and calculate operational risk capital separately for each business line. The Basel Committee defines eight business lines for this purpose:
Option B is incomplete - The text cuts off, but it appears to be referring to the Advanced Measurement Approach (AMA), not the Standardized Approach. AMA uses internal models based on loss distributions, while the Standardized Approach still uses a percentage of gross income but allocated across business lines.
Key differences between BIA and TSA:
This transition represents a more sophisticated and granular approach to operational risk capital calculation.
Ultimate access to all questions.
An emerging market bank that has previously calculated operational risk capital using the basic indicator approach will begin using the Basel II standardized approach instead, having just met the necessary criteria for doing so. Which of the following correctly describes a way in which the bank's operational risk capital calculations will change?
A
The calculations will need to be broken down by the operational risk types defined by the Basel Committee.
B
The calculations will be based on a percentile of a loss distribution rather than a
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