This chapter sets out two standardised approaches (the Standardised Approach and the Alternative Standardised Approach) for calculating operational risk capital requirements, based on a division of a bank's activities into eight business lines.

Version effective as of 1 Jan 2027

Methodology updated to give effect to the changes to the G-SIB framework published in July 2018, the change to the review process published in November 2021 and technical amendments published in November 2023.

Introduction

25.1 The standardised approach methodology is based on the following components:

(1) the Business Indicator (BI) which is a financial-statement-based proxy for operational risk;

(2) the Business Indicator Component (BIC), which is calculated by multiplying the BI by a set of regulatory determined marginal coefficients (αi); and

(3) the Internal Loss Multiplier (ILM), which is a scaling factor that is based on a bank’s average historical losses and the BIC.

25.2 Operational risk capital requirements (ORC) are calculated by multiplying the BIC and the ILM, as shown in the formula below. Risk-weighted assets (RWA) for operational risk are equal to 12.5 times ORC.

ORC = BIC x ILM

Components of the standardised approach