32.The Alternative Standardised Approach provides a different exposure indicator for two of the eight business lines, retail banking and commercial banking. These activities essentially comprise traditional banking business and still represent the main business of banks in several jurisdictions.

Calculation of Operational Risk Capital Charge under Alternative Standardised Approach (ASA)

33.Using the ASA, the operational risk capital charge for retail banking and commercial banking will be based on the following formulas:

Where:

K_rb = is the capital charge for retail banking

m = 0.035

β _rb = is the beta factor for retail banking (12%)

LA_rb = is the total outstanding retail loans and advances (non-risk weighted and gross of provisions), averaged over the past three years

$${\mathrm{K}}_{\mathrm{CB}}={\mathrm{\beta }}_{\mathrm{CB}}\times \mathrm{m}\times {\mathrm{LA}}_{\mathrm{CB}}$$
 

Where:

K_CB = is the capital charge for commercial banking

m = 0.035

β_CB= is the beta factor for commercial banking (15%)

LA_CB = is the total outstanding commercial loans and advances (non-risk weighted and gross of provisions), averaged over the past three years

For the other six business lines, the calculation of the operational risk capital charge will be based on the gross income and beta factor of that business line, as prescribed under the SA.

Further Options under the Alternative Standardised Approach (ASA)

34.Further options are available at under the ASA for calculating the operational risk capital charge to address problems in disaggregation of the exposure indicator among business lines by banks. However, the greater the disaggregation, the better will be the alignment of the capital charge with a bank's operational risk profile.

35.Available options relate to using loans and advances in commercial and retail banking business lines and gross income in the other six business lines as the exposure indicators with different beta factor combinations:

1. -Option 1 – using a common beta factor of 15% for commercial loans and retail loans, and the SA beta factors for the other six business lines
2. -Option 2 – using the SA beta factors of 15% and 12%, respectively, for commercial loans and retail loans and a common beta factor of 18% for the other six business lines
3. -Option 3 – using a common beta of 15% for commercial loans and retail loans and a common beta factor of 18% for the other six business lines

For further details, kindly refer to the Appendix below.