What is economic capital?

Economic capital is the amount of capital that a company needs to survive any risks that it takes. It's essentially a way of measuring risk. Financial services companies calculate economic capital internally. Economic capital should not be confused with regulatory capital (also known as a capital requirement).

Is economic capital the same as regulatory capital?

Economic capital should not be confused with regulatory capital (also known as a capital requirement). Economic capital is different than regulatory capital, also known as capital requirement. What's Economic Capital? Economic capital is used for measuring and reporting market and operational risks across a financial organization.

How do you measure economic capital?

Measuring economic capital involves rating the risk in a company and the amount of capital needed to support that risk in an adverse scenario. The calculations are usually based on the financial institution’s financial strength and expected losses. Financial strength includes the probability of default for a firm.

What is the difference between cultural capital and economic capital?

In contrast, cultural capital encompasses non-financial assets. Economic capital can be defined as a metric utilized to quantify the amount of capital a company needs to withstand financial stress, litigation, or risks associated with future uncertainties.