Economic Capital (EC)
Contents
Unraveling Economic Capital: Navigating Risk in Financial Services
Understanding Economic Capital
Discover the intricacies of economic capital, a crucial metric utilized by financial institutions to measure and manage risk. Explore its significance, calculation methods, and its distinction from regulatory capital.
Deciphering the Dynamics of Economic Capital
Delve into the world of economic capital, where risk is evaluated through economic realities rather than regulatory standards. Learn how financial strength, expected losses, and confidence levels shape the measurement process, providing a more realistic assessment of solvency.
Exploring Economic Capital in Practice
Gain insights into the practical application of economic capital through real-world examples and calculations. Understand how financial institutions utilize economic capital to optimize risk management strategies and make informed business decisions.
Facts About Economic Capital:
- Economic capital measures the amount of capital required by a company to withstand the risks it undertakes, offering a more realistic assessment of solvency. (Source)
- Unlike regulatory capital, economic capital evaluates risk using economic realities rather than accounting and regulatory rules. (Source)
- Performance measures such as return on risk-adjusted capital (RORAC) and economic value added (EVA) are based on economic capital, aiding financial institutions in optimizing risk-reward trade-offs. (Source)