Explanation:
The distributions of loss severity and loss frequency are reversed. The standardized approach divides the bank into eight business lines and uses betas (a.k.a. factor loadings) ranging between 12% and 18%, depending on the relative risk of each business line.
(Book 4, Module 53.2, LO 53.d)
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Question 78
Which of the following is correct in relation to the management and measurement of operational risk?
A
Loss severity is measured via the Poisson distribution.
B
Loss frequency is measured via the lognormal distribution.
C
Operational loss data obtained from vendors tends to be biased toward large losses.
D
The standardized approach used by banks to calculate the capital needed for operational losses applies a blanket factor loading of 15% to all business lines.
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