The BI uses financial-statementdatato calculateoperational risk capital requirements.
It acts as aproxy for a bank’s operational risk exposureby linking operational risk to itsfinancial size and complexity.
Option A ("Proxy for near-miss events")→ Incorrect because BI is based onfinancial data, not near-miss risk events.
Option B ("Non-financial-statement-based proxy")→ Incorrect becauseBI is explicitly derived from financial statements.
Option C ("Scaling factor based on historical losses")→ Incorrect becauseBI does not use historical losses directly—it relies on financial-statement inputs.
Step 1: Definition of the Business Indicator (BI) in Basel IIIStep 2: Why Option D Is CorrectStep 3: Why the Other Options Are Incorrect
Basel III Operational Risk Framework– Defines the Business Indicator as a financial-statement-based metric.
PRMIA Operational Risk Guidelines– Explains the BI’s role in capital calculations.
PRMIA Risk References Used:
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