Difference between revisions of "Economic Capital (ECAP)"
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| − | Economic Capital (ECap) is a risk metric designed to measure the riskiness of an entity’s (called ”Bank” in the sequel) business | + | Economic [[Capital]] (ECap) is a [[risk]] metric designed to measure the riskiness of an entity’s (called ”Bank” in the sequel) [[business]] |
| − | activities and quantify the level of capital commensurate to such risk. As such, it is the output of a mathematical model. Here, we restrict ourselves to the credit risk a Bank accepts as a result of its (contingent) investment activity: credit risk on loans, treasury | + | activities and quantify the level of capital commensurate to such risk. As such, it is the [[output]] of a mathematical [[model]]. Here, we restrict ourselves to the credit risk a Bank accepts as a result of its (contingent) investment activity: credit risk on loans, treasury |
| − | holdings, counterparty credit risk from derivative activities etc. Market risk and operational risk, , legal risk and reputational risks, | + | holdings, counterparty credit risk from derivative activities etc. [[Market]] risk and operational risk, , legal risk and reputational risks, |
also contribute to a Bank’s overall ECap figure.<ref>What is Economic Capital (ECAP)? [http://institute.eib.org/wp-content/uploads/2014/04/EIB_SEMINAR_RIBARITS_2014-09-18.pdf EIB.org]</ref> | also contribute to a Bank’s overall ECap figure.<ref>What is Economic Capital (ECAP)? [http://institute.eib.org/wp-content/uploads/2014/04/EIB_SEMINAR_RIBARITS_2014-09-18.pdf EIB.org]</ref> | ||
Latest revision as of 15:34, 6 February 2021
Economic Capital (ECap) is a risk metric designed to measure the riskiness of an entity’s (called ”Bank” in the sequel) business activities and quantify the level of capital commensurate to such risk. As such, it is the output of a mathematical model. Here, we restrict ourselves to the credit risk a Bank accepts as a result of its (contingent) investment activity: credit risk on loans, treasury holdings, counterparty credit risk from derivative activities etc. Market risk and operational risk, , legal risk and reputational risks, also contribute to a Bank’s overall ECap figure.[1]