Abstract: Economic capital is a management requirement and has different viewpoints. Different viewpoints have a common background that looks at economic capital as a performance measure. They also pose several challenges: (1) fair value of assets and liabilities, and (2) identification of risks, correlations, weights, and effective resource allocation. The latter must satisfy a number of requirements concerned with three different approaches: shareholder's perspective, bondholder's perspective, and regulator's perspective. Economic capital's role is to assure that even under extreme conditions the credit institution attracts counterparties, remains solvent, and stays in business. In addition to the difference that exists between regulatory capital and economic capital, there is a distinction made between economic capital and entrepreneurial capital. It has been a deliberate choice—in preparing an integrated view of expert opinions on economic capital—that this distinction should not take center stage. Economic capital is the amount of capital required by a financial institution to achieve its target solvency standard.
Publication Year: 2004
Publication Date: 2004-01-01
Language: en
Type: book-chapter
Indexed In: ['crossref']
Access and Citation
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot