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Answer: The calculations will need to be broken down by business line.
## Explanation **C is correct.** The standardized approach under Basel II requires banks to calculate operational risk capital by breaking down calculations by business line, with different percentages applied to gross income across different business lines. This represents a key difference from the basic indicator approach, which uses a single percentage (15%) applied to the bank's overall 3-year average annual gross income. **A is incorrect** because the advanced measurement approach (AMA), not the standardized approach, uses percentiles of loss distributions. **B is incorrect** because the advanced measurement approach, not the standardized approach, requires breakdown by operational risk types defined by the Basel Committee. **D is incorrect** because the Business Indicator component is used in the standardized measurement approach developed under revisions to Basel III, not the Basel II standardized approach.
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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 be based on a percentile of a loss distribution rather than a percentage applied to gross income.
B
The calculations will need to be broken down by the operational risk types defined by the Basel Committee.
C
The calculations will need to be broken down by business line.
D
The calculations will now need to include a Business Indicator component.
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