Question

Based on basel 3,talk about the reason chose Business indicator instead of Gross income and the impact as well

Answer 1

In the Basel 3 accord basic indicator approach was chosen instead of the gross income.The major reason for this was the simplistic rule followed by the Gross Income.The simplistic rule lead to the biased construct of the Gross Income.
The basic indicator approach is an approach to calculate the operational risk of the capital.According to the basic indicator approach the required level of operational risk of capital is 15 percent of the banks annual positive income averaged over previous three years.
The main effect of the basic indicators approach is that banks adopting this approach need to address the column 2 dimension with advanced information and communication on their operational risk management framework.