Question
What is the alpha factor set by Basel Committee relating
to the industry wide level of required capital for operational risk, under the Basic Indicator Approach?Solution
Basic Indicator approach (BIA): Banks using this approach, bank must hold capital for operational risk equal to the average over the previous three years of a fixed percentage of positive annual gross income. Formula: KBIA= (Sigma (GI...n * alpha)/n ·        KBIA - capital charge under BIA, ·        GI annual gross income, ·        n - number of previous years ( Eg:3) ·        Alpha factor =15% is set by Basel Committee relating to the industry wide level of required capital
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