calculate the operational risk capital charge under Basel II using the standardized approach for the following data.
| (in millions) | Year 1 | Year 2 | Year 3 |
| Commercial banking | 12 | 3 | -4 |
| Asset management | 12 | 45 | -12 |
| Retail brokerage | 3 | 21 | -13 |
under the standard method, the operational risk capital charge is closest to
a. $22.35
b. $4.00
c. $33.50
d. $48.00
Give a detailed motivation.
The operational risk capital charge is calculated by taking the average of capital charges across each of the business lines in each year as below:
| (in millions) | Year 1 | Year 2 | Year 3 |
| Commercial banking (A) | 12 | 3 | -4 |
| Asset management (B) | 12 | 45 | -12 |
| Retail brokerage (C) | 3 | 21 | -13 |
| Total (A+B+C) | $27 | $69 | -$29 |
| Average (Total/3) | $9 | $23 | -$9.67 |
Now, we can determine the value of operational charge is arrived as follows:
Operational Risk Capital Charge = 9 + 23 + (-9.67) = $22.33 which is closest to $22.35
Answer is $22.35 (which is Option A)
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