4、All of the following are acceptable methods for benchmarking operational risk EXCEPT:

A) comparing the advanced measurement approach (AMA) capital charge against the basic indicator approach (BIA) or the standardized approach (SA) capital charges.
 
B) comparing the operational risk capital charge against the LDA Association Capital Index (LDAACI).
 
C) comparing the LDA model outputs against adverse extreme, but realistic, scenarios.
 
D) comparing the operational risk capital charge against the institution’s peers.

The correct answer is B

The LDAACI is a fictitious term.

5、With respect to quantifying operation risk under the Basel II Accord, the loss distribution approach (LDA):

A) is currently disallowed, but its use is under review.
 
B) is the only recommended approach.
 
C) has been permanently disallowed.
 
D) is one of many possible approaches.

The correct answer is D

The Basel II Accord allows several approaches to the quantification of operation risk, and many see the loss distribution approach (LDA) as the natural way to meet the soundness standards for economic and regulatory capital by explicitly modeling the operation risk loss distribution of the bank over a one-year period.