nayizhenfeng

 

4、An approach to assessing regulatory capital for operational risk that bases the capital charge upon a fixed percentage of some measure (e.g., gross income) of operational risk exposure is the:

A) standardized approach.  

B) internal measurement approach. 

C) basic indicator approach.  

D) loss distribution approach. 

nayizhenfeng

 

The correct answer is D

 

For 127 exceptions, the exposure multiplier would be 1.17, in the yellow zone.

nayizhenfeng

 

AIM 14: Discuss the three methods for addressing operational risk under the Basel II Accord.

1、The most data intensive approach to assessing regulatory capital for operational risk is the:

A) basic indicator approach.  

B) standardized approach. 

C) foundation internal ratings based approach.  

D) advanced measurement approach. 

nayizhenfeng

 

The correct answer is D

 

The most data intensive approach to assessing regulatory capital for operational risk is the advanced measurement approach. Note that the foundation internal ratings-based approach is used for assessing credit risk.

nayizhenfeng

 

2、The Basel II Accord recommends basic methods for assessing operational risk that estimate the risk by:

A) applying a floating percentage to operating assets based on their risk profiles.  

B) adding a premium to the credit risk measures used by the bank. 

C) adjusting the required capital by a fixed percentage of total bank assets.   

D) multiplying annual gross income by a set percentage. 

nayizhenfeng

 

AIM 13: Discuss the supervisory backtesting framework used in conjunction with an institution’s internal models, and describe the 3-zone supervisory framework for evaluating backtesting results.

1、According to the Basel Accord, if the number of exceptions to the back-testing of value at risk (VAR) models exceeds four at the 99 percent confidence level, which of the following may occur (given 250 data points)?

A) Regulators may decrease the multiplier.  

B) Banks may ignore the model for future VARs. 

C) Regulators may increase the multiplier.  

D) Risk managers may be decertified.

nayizhenfeng

 

The correct answer is C

 

The Basel Accord established a scale by which the multiplier may be increased for the number of exceptions above four (or 100 given 5,000 data points). For example, if a model has 5 exceptions, the multiplier will increase by 0.40 to 3.40 (or similarity, the floor value of 3 will be multiplied by 1.13 to get 3.4). This in turn increases the amount of capital a bank must hold, and in turn lowers performance measures like return on equity.

nayizhenfeng

 

2、If a supervisory backtest for a 1-year period results in 127 exceptions, then the bank’s exposure would be classified as:

A) Green zone, and an exposure multiplier of 1.0 would be applied.  

B) Yellow zone, and an exposure multiplier of 1.0 would be applied. 

C) Red zone, and an exposure multiplier of 1.33 would be applied.  

D) Yellow zone, and an exposure multiplier between 1.1 and 1.3 would be applied.

nayizhenfeng

 

The correct answer is A

 

The full amount of any first–loss position in an asset securitization (losses the bank must absorb before other security holders hear losses) is deducted from regulation capital under Basel II.

nayizhenfeng

 

2、The Internal Assessment Approach (IAA) for calculating capital requirements for securitized assets is:

A) acceptable as a means of addressing the risk of unrated assets.  

B) the most common way for banks to determine the capital required for securitized assets.  

C) entirely independent of any external rating system.

D) available to any bank using IRB risk weighting methods.