Explanation:
The basic indicator approach applies a "blanket" 15% factor loading to the average income of the past three years. The standardized approach divides the bank into eight business units and applies individual factor loadings of either 12%, 15%, or 18%, depending on the relative riskiness of each business line. Retail is the least risky and requires a loading of 12%, whereas investment banking and trading are the riskiest and command a loading of 18%.
(Book 4, Module 53.1, LO 53.b)
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Question 20
Beta Bank is a small Greek bank in the city of Athens with only retail banking and retail brokerage business lines. Assuming Beta Bank could choose between different approaches for the calculation of operational risk capital, which approach would result in the lowest capital requirement?
A
Basic indicator approach.
B
Standardized approach.
C
Both basic indicator approach and standardized approach.
D
Internal ratings-based approach.
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