Financial Risk Manager Part 2

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Explanation:

The operational risk capital requirement (ORC) can be calculated as follows:

\text{ORC} = \text{BIC} \times \text{ILM}

Where the Business indicator component (BIC) is given by:

\text{BIC} = \sum (\alpha_i \times \text{BI}_i)

\text{BIC} = (12\% \times €1) + (15\% \times (€30 - €1)) + (18\% \times (€40 - €30)) = €6.27

And, the Internal losses multiplier (ILM) is expressed as:

\text{ILM} = \ln[\exp(1) - 1 + (\frac{\text{LC}}{\text{BIC}})^{0.8}]

\text{ILM} = \ln[\exp(1) - 1 + (\frac{1.2}{6.27})^{0.8}] = \ln 1.98 = 0.6855

Finally,

\text{ORC} = €6.27 \times 0.6855 = €4.30

Explanation:

The operational risk capital requirement (ORC) can be calculated as follows:

\text{ORC} = \text{BIC} \times \text{ILM}

Where the Business indicator component (BIC) is given by:

\text{BIC} = \sum (\alpha_i \times \text{BI}_i)

\text{BIC} = (12\% \times €1) + (15\% \times (€30 - €1)) + (18\% \times (€40 - €30)) = €6.27

And, the Internal losses multiplier (ILM) is expressed as:

\text{ILM} = \ln[\exp(1) - 1 + (\frac{\text{LC}}{\text{BIC}})^{0.8}]

\text{ILM} = \ln[\exp(1) - 1 + (\frac{1.2}{6.27})^{0.8}] = \ln 1.98 = 0.6855

Finally,

\text{ORC} = €6.27 \times 0.6855 = €4.30

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BI Bucket	1	2	3
BI Range	≤ 1 bn	1 bn < BI ≤ 30 bn	30 bn
Marginal BI Coefficient	12%	15%	18%

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Last updated: July 5, 2026 at 07:21

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