Module: | MODULE B: RISK MANAGEMENT
Q417: A bank uses The Standardised Approach (TSA) to calculate its operational risk capital charge. For the most recent year, its 'Corporate Finance' business line generated a Gross Income of 200 Crore.
Under the Basel TSA framework, what is the specific operational risk capital charge required for this single business line for that year?
✅ Correct Answer: C
The correct answer is C.
Step-by-step breakdown of The Standardised Approach (TSA) logic:
Under TSA, banks divide their activities into 8 specific business lines.
Instead of a single flat Alpha rate (15%), TSA applies a specific 'Beta' percentage to the Gross Income of each respective business line, reflecting its inherent risk level.
The Beta factors are rigidly fixed by Basel:
1. Corporate Finance (Beta = 18%)
2. Trading & Sales (Beta = 18%)
3. Payment and Settlement (Beta = 18%)
4. Commercial Banking (Beta = 15%)
5. Agency Services (Beta = 15%)
6. Retail Banking (Beta = 12%)
7. Asset Management (Beta = 12%)
8. Retail Brokerage (Beta = 12%)
The question specifically asks for the "Corporate Finance" business line, which carries an 18 percent Beta factor.
Calculation: 200 Crore (Gross Income) * 0.18 (Beta Factor) = 36 Crore.
Option A is incorrect (Calculates at 12%, which applies to Retail Banking).
Option B is incorrect (Calculates at 15%, which applies to Commercial Banking).
Option D is incorrect (Arbitrary distractor value).
Option C is the accurate mathematical result.
Step-by-step breakdown of The Standardised Approach (TSA) logic:
Under TSA, banks divide their activities into 8 specific business lines.
Instead of a single flat Alpha rate (15%), TSA applies a specific 'Beta' percentage to the Gross Income of each respective business line, reflecting its inherent risk level.
The Beta factors are rigidly fixed by Basel:
1. Corporate Finance (Beta = 18%)
2. Trading & Sales (Beta = 18%)
3. Payment and Settlement (Beta = 18%)
4. Commercial Banking (Beta = 15%)
5. Agency Services (Beta = 15%)
6. Retail Banking (Beta = 12%)
7. Asset Management (Beta = 12%)
8. Retail Brokerage (Beta = 12%)
The question specifically asks for the "Corporate Finance" business line, which carries an 18 percent Beta factor.
Calculation: 200 Crore (Gross Income) * 0.18 (Beta Factor) = 36 Crore.
Option A is incorrect (Calculates at 12%, which applies to Retail Banking).
Option B is incorrect (Calculates at 15%, which applies to Commercial Banking).
Option D is incorrect (Arbitrary distractor value).
Option C is the accurate mathematical result.