INTM267742 - Foreign banks trading in the UK through permanent establishments: The approach in determining an adjustment to funding costs - STEP 2: Risk weighting the assets - the Basel II regulatory regime: Pillar 1 - the basic indicator approach to operational risk
The indicator under this approach is the sum of the bank鈥檚 net interest income plus its net non-interest income as defined at 鈥淧rudential sourcebook for Banks, Building Societies and Investment Firms鈥� (BIPRU) 6.3.6 R. The bank is required to hold capital to support operational risk in an amount equal to its average gross income over the three previous years of a fixed percentage of positive gross income. The Prudential Regulation Authority (PRA) sets a percentage of 15%.