medium · FRM Part 2 Operational Risk
A bank calculates its Standardized Measurement Approach (SMA) capital.
If the Business Indicator Component (BIC) is $2.0 billion and the Internal Loss Multiplier (ILM) is 1.0, what is the operational risk capital, and what does an ILM = 1.0 imply about the bank's loss history?
- 2.0 billion; the bank's average losses are exactly aligned with the BIC benchmark.
- 2.0 billion; the bank has no internal loss data and must use the supervisor's default.
- 1.0 billion; the bank has a superior loss history compared to peers.
- 4.0 billion; the ILM acts as a floor that doubles the BIC.
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