Three methods for calculating operational risk exposure under Basel II

There are three methods for calculating the operational risk exposure under Basel II; the basic indicator approach, the standardized approach and the advanced measurement approach.

Under the basic indicator approach, operational risk exposure is calculated as the bank's average annual gross income over three years multiplied by 0.15. Under the standardized approach, the calculation is the same, except that a different factor is applied to the gross income from different business lines. In the advanced measurement approach, banks are allowed to account for risk-mitigating impact of insurance contracts.