Explanation:
This method computes the capital for the operational risk as the 15% of the bank’s average annual gross income over the past three years while ignoring years that resulted in negative gross income.
So,
| Business Line | Annual Gross Income |
|---|---|
| Year 1 | |
| Retail Banking | 6 |
| Asset Management | 8 |
| Trading and Sales | 9 |
| Corporate Finance | 42 |
| Sum | 65 |
Note that the multiplier column has been excluded since we do not need it here. Therefore, the required capital for the operational risk is given by:
0.15` \left[ \frac{65 + 71 + 74}{3} \right] = 10.5 \text{ million}
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Q.4403 A bank majors in four business lines whose corresponding multipliers and gross income (in millions) for three years are given in the table below:
| Business Line | Multiplier | Annual Gross Income |
|---|---|---|
| Year 1 | ||
| Retail Banking | 13% | 6 |
| Asset Management | 14% | 8 |
| Trading and Sales | 19% | 9 |
| Corporate Finance | 18% | 42 |
Based on the Basel II accord, what is the value of the required capital for operational risk under the Basic Indicator approach?
A
7.2
B
4.0
C
10.2
D
10.5