Explanation:
Under the Basic Indicator Approach (BIA) of the Basel Accord, the capital charge for operational risk is equal to (which is set at 15%) multiplied by the average over the previous three years of positive annual gross income.
Gross income = Net interest income + Non-interest income.
The average gross income over the 3 previous years (2013, 2014, 2015) is:
Capital charge = $15% \times 124 = 18.6 \text{ USD million}$.
Ultimate access to all questions.
Q.66 Bakster Bank is following the basic indicator approach for calculating the operational risk amount for the year 2016. Some past financial details of the bank are given below:
| Year | Net interest income | Non-interest income |
|---|---|---|
| 2015 | 102 | 25 |
| 2014 | 104 | 22 |
| 2013 | 98 | 21 |
| 2012 | 91 | 17 |
(All amounts are in USD millions) Based on the original Basel Accord, the bank must hold capital for operational risk for 2016 equal to:
A
USD 18 million
B
USD 18.6 million
C
USD 24.8 million
D
USD 31 million
No comments yet.