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Economic Capital by Idzard van Eeghen, Pieter Klaassen

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Chapter 5. Facing Reality - Implementing Economic Capital

In the previous chapters we reviewed important choices and assumptions with respect to the definition and calculation of economic capital. In the actual implementation and use of economic capital in a financial institution, we encounter a number of dilemmas, requiring choices that impact the benefits that can be derived from the use of economic capital. In this chapter, we will discuss these dilemmas in relation to the primary purposes of economic capital: ensuring continuity (Section 5.1) and optimizing profitability (Section 5.2). Section 5.3 provides a summary of the discussion in this chapter.

5.1. Ensuring Continuity

To help ensure continuity and assess whether the institution has ...

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