The following terms and phrases used in this document shall have the corresponding meanings unless otherwise stated:
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| Operational risk | the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risk but excludes strategic and reputational risk.
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| Legal risk | includes, but is not limited to, exposure to fines, penalties, or punitive damages resulting from supervisory actions, as well as private settlements.
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The standardized approach methodology components
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(1) the Business Indicator (BI)
| a financial-statement-based proxy for operational risk;
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(2) the Business Indicator Component (BIC)
| calculated by multiplying the BI by a set of regulatory determined marginal coefficients or percentages; and
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(3) the Internal Loss Multiplier (ILM)
| a scaling factor that is based on a bank’s average historical losses and the BIC.
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| Gross loss | a loss before recoveries of any type.
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| Net loss | the loss after taking into account the impact of recoveries.
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| Recovery | an independent occurrence, related to the original loss event, separate in time, in which funds or inflows of economic benefits are received from a third party1.
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1 Examples of recoveries are payments received from insurers, repayments received from perpetrators of fraud, and recoveries of misdirected transfers.
