Question 15.16: Explain the difference between the basic indicator approach,...
Explain the difference between the basic indicator approach, the standardized approach, and the advanced measurement approach for calculating operational risk capital under Basel II.
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In the basic indicator approach, total capital is 15% of the average total annual gross income. In the standardized approach, gross income is calculated for different business lines, and capital as a percentage of gross income is different for different business lines. In the advanced measurement approach, the bank uses internal models to determine the 99.9% one-year VaR.
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