Measuring Economic Capital has many business benefits
Measuring Economic Capital has many business benefits
Economic Capital planning has become the key area for integrating the risk and return perspective to the overall competitiveness of financial services companies. Therefore, it features as a top priority in the regulatory mandates of the Basel II Capital Accord.
Measuring Economic Capital has many business benefits, as it enables management to quantify risks, to link those risks to particular business activities, to calculate the capital needed to cover them and the real returns being made and to incorporate unexpected losses into pricing.
KPMG's Financial Risk Management Services practice offers the following Economic Capital services:
Pillar II compliance
Risk adjusted returns
Finally, the link between risk and reward can be established and this will form the basis for the measurement of risk-adjusted returns. For financial institutions already measuring on a risk-adjusted return basis, this can lead to an enhancement of the measurement techniques and integration with capital adequacy considerations.