Module: | MODULE B: RISK MANAGEMENT
Q314: Consider the following statements regarding The Standardised Approach (TSA) for Operational Risk capital charges:
1. It divides the bank's entire spectrum of activities into exactly eight distinct business lines.
2. Every business line is assigned a uniform beta factor of 15 percent, similar to the Basic Indicator Approach.
3. Retail banking and commercial banking are assigned a higher beta factor than corporate finance and trading operations.
Which of the statements given above is/are correct?
2. Every business line is assigned a uniform beta factor of 15 percent, similar to the Basic Indicator Approach.
3. Retail banking and commercial banking are assigned a higher beta factor than corporate finance and trading operations.
Which of the statements given above is/are correct?
✅ Correct Answer: A
The correct answer is A. Statement 1 is correct: The Standardised Approach (TSA) explicitly maps a bank's activities into eight standardized business lines: Corporate finance, Trading & sales, Retail banking, Commercial banking, Payment & settlement, Agency services, Asset management, and Retail brokerage.
Statement 2 is incorrect: Unlike the Basic Indicator Approach (which uses a uniform 15% Alpha), TSA uses specific Beta factors for each line based on their inherent riskiness.
The Beta factors are 12%, 15%, or 18%. Statement 3 is incorrect: Retail and Commercial banking are considered lower risk and receive the lowest beta factor of 12%. Conversely, Corporate Finance and Trading & Sales are considered high-risk activities and receive the highest beta factor of 18%.
Statement 2 is incorrect: Unlike the Basic Indicator Approach (which uses a uniform 15% Alpha), TSA uses specific Beta factors for each line based on their inherent riskiness.
The Beta factors are 12%, 15%, or 18%. Statement 3 is incorrect: Retail and Commercial banking are considered lower risk and receive the lowest beta factor of 12%. Conversely, Corporate Finance and Trading & Sales are considered high-risk activities and receive the highest beta factor of 18%.