economic capital

Hi everyone, Economic Capital (EC) was introduced in Chapter 1 as risk capital being used to absorb Unexpected Loss (UL) and is express as multiple of UL. <Page 4> However, when taken into account in relation to RAROC, it was said that EC is a risk measure that includes both UL and Expected...

Learning objectives: Evaluate a bank’s economic capital relative to its level of credit risk. Identify and describe important factors used to calculate economic capital for credit risk: probability of default, exposure, and loss rate. Questions: 920.1. A bank's asset value has an expected...

Learning objectives: Identify the major risks faced by a bank. Distinguish between economic capital and regulatory capital. Questions: 700.1. Below is a hypothetical summary income statement for Deposits and Loans Corporation (DLC): Risks can affect any line in the income statement, but...

Learning objectives: Define, compare, and contrast risk capital, economic capital and regulatory capital, and explain the motivations for using economic capital. Describe the RAROC (risk-adjusted return on capital) methodology and its benefits. Compute and interpret the RAROC for a project...

Hi David, What exactly is economic capital? My understanding is the economic capital is what is present in your balance sheet. This may be more or less than your regulatory capital.. Am I correct. Thanks, Kavita

Learning outcomes: Evaluate a bank’s economic capital relative to its level of credit risk. Identify and describe important factors used to calculate economic capital for credit risk: probability of default, exposure, and loss rate. Questions: 505.1. According to Schroeck, economic capital is...