Economics · Banking Operational Risk
Under the Basel guidelines for operational risk in banking, how does a high frequency of small-value clerical errors leading to customer compensation impact a branch's operational risk capital charge under the standardized approaches?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1It reduces the operational risk charge because high frequency implies active customer engagement and transaction volume.
- 2It eliminates the need for any capital charge since small errors are completely ignored by internal control frameworks.
- 3It has no impact because capital charges for operational risk are only allocated based on credit risk ratings of large corporate accounts.
- 4It contributes to the baseline operational risk evaluation, and high losses directly reduce net economic profit through operational expenses and provisions.✓
Correct answer
It contributes to the baseline operational risk evaluation, and high losses directly reduce net economic profit through operational expenses and provisions.
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