The correct answer is C.

Bank B would be expected to use loss experience in the standardized approach calculations. This is because, according to the Basel III reforms announced in 2017, all banks are required to use the standardized approach in operational risk capital calculations. For banks with Business Indicator (BI) values of more than €1 billion (falling into bucket 2-3), internal loss experience must be taken into account while calculating operational risk capital. In this case, Bank B, with a BI value of €1.2 billion, falls into this category and therefore, would be expected to incorporate its loss experience into its calculations.

Choice A is incorrect. The Advanced Measurement Approach (AMA) and the Standardized Measurement Approach (SMA) are not determined by the Business Indicator (BI) value of a bank. Both Bank A and Bank B can use either approach depending on their operational risk management capabilities, regulatory approval, and other factors.

Choice B is incorrect. Both banks would be expected to set aside capital for operational risk as it is a requirement under Basel III regulations for all banks, regardless of their BI values.

Choice D is incorrect. As explained above, both Bank A and Bank B would be expected to set aside some capital for operational risk as per Basel III regulations.