nayizhenfeng

 

5、Under the basic indicator approach to measuring operational risk capital proposed in the New Basel Accord, a bank will hold capital for operational risk equal to a fixed percentage of the bank’s:

A) average annual revenues over the prior two years.   

B) average annual gross income over the prior three years.  

C) average market risk and credit risk capital over the prior three years.   

D) market risk capital in the previous year. 

nayizhenfeng

 

The correct answer is B

 

The basic indicator approach measures the capital charge on a firm-wide basis. Banks will hold capital for operational risk equal to a fixed percentage of the bank’s average annual gross income over the prior three years. The committee has proposed 15% as an initial proportion of operational risk for the indicator.

nayizhenfeng

 

6、One criticism of the BIS definition of operational risk is that it does not directly address:

A) strategic or reputational risk.  

B) risk of natural disaster. 

C) risk of inadequate or failed processes.  

D) human mistakes.

nayizhenfeng

 

The correct answer is A

 

The BIS definition of operational risk is the risk of losses due to inadequate or failed processes, persons, and systems that cannot protect a firm from outside events. The BIS definition focuses on actual direct/indirect losses and does not directly address strategic or reputational risk.

nayizhenfeng

 

7、Basel II allows which of the following options for the calculation of operational risk?

Standardized risk.

Foundation IRB approach.

Basic indicator approach.

A) I only.

B) II and III only.  

C) I and III only.  

D) I, II, and III.

nayizhenfeng

 

The correct answer is C

 

For calculating operational risk requirements, the three allowed approaches are (1) basic indicator approach, (2) standardized approach, and (3) advanced measurement approach. The foundation IRB approach is used for credit risk.

nayizhenfeng

 

8、A bank that wishes to adopt a framework for determining regulatory operational risk capital must meet the most stringent criteria if it wants to adopt the:

A) Advanced standardized approach (ASA).  

B) Advanced measurement approach (AMA).  

C) Basic indicator approach (BIA).  

D) Standardized approach (SA). 

nayizhenfeng

 

The correct answer is B

 

The most stringent criteria are for adoption of the advanced measurement approach (AMA).

nayizhenfeng

 

AIM 15: Discuss the “evolutionary aspect” of the risk measurement procedures addressed in the Basel II Accord.

1、Risk measurement procedures under the Basel II Accord take on an “evolutionary aspect” in that:

A) enhanced supervisory control will lead to more consistent risk assessment and more comparable bank risk profiles.   

B) stricter adherence to standardized risk assessment procedures will allow banks more flexibility to take on non-traditional risks.  

C) banks should be able to use their own internal risk assessments to improve accuracy in assessing their risk exposure. 

D) less conservative risk measures such as downturn loss given default (LGD) will allow banks to take on more risky strategies. 

nayizhenfeng

 

The correct answer is C

 

The evolutionary aspect of Pillar I arises from the desired goal of having banks move away from standardized risk measurement approaches to foundation IRB approaches, and ultimately on to advanced IRB approaches. Under the advanced IRB approach, banks will use internal risk assessment models to keep pace with changes in the marketplace. Enhanced supervisory controls or stricter adherence to standardized risk assessment would be counter to this goal. Note that downturn LGD is a more conservative risk measure.