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’s net interest income plus its net non-interest income as defined at “Prudential sourcebook for Banks, Building Societies and Investment Firms” (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%.