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Economic Capital by Idzard van Eeghen, Pieter Klaassen

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Chapter 7. What Is Next? The Future of Economic Capital

In the previous chapters, we reviewed many choices and assumptions with respect to the definition, calculation, and use of economic capital. For a successful application of economic capital within a financial institution, it is important that these choices and assumptions are made in a conscious and consistent way. They should be consistent with the purpose for which management of a financial institution aims to use economic capital, because the choices and assumptions not only define the applicability of economic capital but also its limitations. For example, we have seen in Chapter 3 that the definition of economic capital itself may depend on whether it is used in the context of ensuring ...

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