A regulatory method that sets capital using fixed risk weights or formulae supplied by the regulator. It is simpler than internal models.
Where you will meet it
Standardised approach comes up in 9 learning outcome notes across the FRM syllabus.
A few of them:
Operational Risk FRM Part I · Valuation and risk models
“The standardized approach splits gross income into eight business lines and multiplies each by a beta between 12% and 18%, for example 18% for trading and sales and 12% for retail banking.”
Margin (Collateral) and Settlement FRM Part II · Credit risk measurement and management
“Under Basel III, counterparty credit exposure uses SA-CCR, the standardized approach.”
Fundamental Review of the Trading Book FRM Part II · Market risk measurement and management
“A revised standardized approach applies to every desk.”
Capital Regulation Before the Global Financial Crisis FRM Part II · Operational risk and resilience
“In the standardized approach the risk weight comes from the regulator's table.”
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