Description

Economic capital is defined as the amount of capital that a business requires in order to support the economic risks it creates. It can be considered as a buffer against potential unexpected losses to a pre-defined solvency standard over a given time.

Economic Capital Planning has been given added focus by the regulatory mandates of the Basel II Capital Accord, since Basel II, Pillar 2 demands that banks establish an internal capital adequacy assessment process (ICAAP).

Features

• Performs adequate risk measurement, risk aggregation and capital allocation.
  
• Provides guidance on business software packages (e.g., selection and customization of portfolio models) and their implementation.
  
• Develops customized capital measurement and management frameworks that are calibrated to meet business needs.
  
• Review compliance of risk-measurement/risk-management systems with Basel II.
  
• Uses sophisticated modeling to assess different business and loss scenarios, and to determine how various opportunities can be exploited to the fullest. Also helps clients develop tailor-made planning and budgeting tools.

Benefits

• Enhances business performance by allocating scarce capital resources to value-enhancing operations.
  
• Measures risk vs. return and guides organizations in strategic decisions on retaining, growing or shrinking businesses.
  
• Helps banks to determine whether they are pricing individual loans accurately, and whether their overall loan portfolio is priced correctly with regard to the risks they are carrying.
  
• Helps ensure compliance with regulatory requirements.