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Category Archives: Capital Allocation

Attributes of Economic Capital Model

Economic Capital for banking industry

Economic Capital – Everything you ever wanted to know but were afraid to ask. For the last seventeen years I have hated conversations with board members around economic capital. It is perfectly acceptable to discuss Market risk, Credit risk or interest rates mismatch in isolation


Calculating Economic Capital – Using Leverage ratio

So far we have presented two methods for estimating Economic Capital. The first uses the worst case change in Shareholders equity, the second the volatility of the same changes. The challenge with method one and two is that they use capital adequacy as the determining


Calculating economic capital – Using volatility

In our first method presented earlier for calculating economic capital we used the historical worst case shift. In method two we use volatility. Method two is a variation designed to provide additional flexibility in estimating probability of capital shortfall in the event of market or

Economic Capital - Case Study using Goldman, JP, Wells & Citi datasets

Calculating Economic Capital – A Case Study

Method One Our alternate model for calculating Economic Capital comes in a multiple variation. We do a detailed presentation for method one, followed by smaller posts on each variation. Method one use changes in Shareholders equity as reported in publicly disclosed financial statements to build

Economic Capital - Case Study using Goldman, JP, Wells & Citi datasets

Economic Capital Case Study – Introductions

Economic Capital Case Study – Banking Sector The best way to illustrate our shortfall economic capital model is to walk through an extended case study.  Here is our plan. Let’s take a look at five financial institutions. Goldman Sachs, Citibank, JP Morgan Chase, Wells Fargo

Attributes of Economic Capital Model

Using Economic Capital – An alternate model

Economic Capital – a first look Among the many uses of capital one overlooked use is its ability to send signals to regulators, customers and partners.   Models and their usage give an indication of the sophistication and maturity of an organization. Using economic capital models

Economic Capital Model

A new series on Economic Capital Models for Financial services

Starting this week a brand new series on economic capital for the financial services industry. We cut through the smoke and mirrors show around economic capital and investigate alternate approaches for the enterprise that shy away from questionable assumptions. Imagine calculating Enterprise capital without building