Answers to the European Commission on the ... - Eiopa - Europa

Operational risk
B.110 In <strong>the</strong> banking sec<strong>to</strong>r, <strong>the</strong> CRD offers two fac<strong>to</strong>r-based methods for <strong>the</strong>
calculation of operational risk requirements, namely:
• <strong>the</strong> basic indica<strong>to</strong>r approach (BIA); and
• <strong>the</strong> standardised approach (TSA).
B.111 The BIA uses a measure of gross income as a proxy for <strong>the</strong> scale of an
undertaking's operations, and <strong>the</strong>refore <strong>the</strong> likely scale of operational
risk exposure. A fixed percentage is applied <strong>to</strong> <strong>the</strong> undertaking's
average positive income over <strong>the</strong> previous three years.
K
BIA
where:
α
= ×
T
T
∑
t = 1
GI
t
KBIA = <strong>the</strong> capital charge under <strong>the</strong> basic indica<strong>to</strong>r approach;
GIt = Annual gross income in year t (where positive) over <strong>the</strong>
previous three years;
T = <strong>the</strong> number of previous years for which <strong>the</strong> gross income is
positive; and
α = <strong>the</strong> industry-wide level of <strong>the</strong> indica<strong>to</strong>r, set at 15% by <strong>the</strong>
Basel Committee on Banking Supervision
B.112 The TSA applies different fac<strong>to</strong>rs <strong>to</strong> eight different business lines 156 ,
varying from 12 <strong>to</strong> 18%.
K
TSA
= t i
3 ⎛
8 ⎧
∑⎜ ⎜
max⎨0,
∑GI
= 1 ⎝ ⎩ = 1
3
i,
t
⎫⎞
× β ⎬⎟
i ⎟
⎭⎠
156 Alternative treatments are available for commercial and retail banking, subject <strong>to</strong> certain conditions.
258