SUMMARY

All aspects of economic capital for financial conglomerates are incorporated. Moreover, this book is set apart from any other in its field because it provides you with a balanced overview from the perspective of both risk managers within institutions and supervisors.

Practitioners, risk managers, policymakers and academics are brought together with their insights combined into a single volume. As the practitioners' view is not that of a single institution, consultant or vendor you are able to reflect on the combined insights of a number of institutions that have cutting edge economic capital frameworks.

Economic Capital Modelling

• Provides information for institutions to implement economic capital models and lead you to improved risk management and more accurate pricing.

• Discusses the requirements for an economic capital model on a more theoretical level.

• Shows you what a feasible implementation target is and which difficulties might be encountered by examining the current state of implementation of economic capital methodology at large mixed financial conglomerates.

This book is recommended for practitioners, supervisors in both the industry and supervisory communities and academics. It gives you an important update on industry best practice in a rapidly developing field and offers you a comprehensive and impartial overview from all viewpoints.

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  TABLE OF CONTENTS

Economic capital: an overview

• Introduction
• The importance of risk measurement
• Approaches to modelling risk
• Measures of risk: economic capital
• Regulatory considerations
• Concluding remarks

RISK MEASUREMENT WITHIN FINANCIAL CONGLOMERATES: BEST PRACTICES BY RISK TYPE

• Summary and conclusions
• Risk measurement and economic capital
• Risk typology
• Market/ALM risk
• Credit and transfer risk
• Life risk
• Non-life or property and casualty risk
• Operational risk
• Business or strategic risk
• Conclusion

APPROPRIATE RISK MEASURES, TIME HORIZON AND VALUATION PRINCIPLES IN ECONOMIC CAPITAL MODELS

• Summary and conclusions
• Introduction
• Risks, risk measures and economic capital
• One risk measure for all stakeholders?
• Experiences of financial conglomerates
• Appropriate time horizons in economic capital
• Valuation principles
• Concluding remarks

Diversification and aggregation of risks in financial conglomerates

• Summary and conclusions
• Introduction
• Correlation, netting, concentration and granularity
• Measurement approaches
• Aggregation approaches
• Estimation of diversification benefits
• Allocation
• Data quality and mis-estimation
• Regulatory considerations

A SURVEY OF ECONOMIC CAPITAL MODEL IMPLEMENTATION

• Summary and conclusions
• Introduction
• Previous surveys
• Objectives for economic capital models
• Implementation of economic capital models: an overview
• General remarks about all risk types
• Approaches per risk type
• Future extensions
• Concluding remarks

A supervisory view on economic capital models
Summary and conclusions
Introduction
Regulatory developments
Principles for economic capital models
Supervisory issues
Concluding remarks

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  AUTHOR BIOGRAPHY

Iman van Lelyveld is policy advisor at DNB, active in the development of the Supervisory Review, risk management and banking research. In addition, he holds a part-time associate professorship at Radboud University, teaching international financial management. He has published work on financial conglomerates, interbank contagion and foreign banking in Central and Eastern Europe. He studied macroeconomics at the University of Amsterdam and started his career at Deutsche Bank.

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  CONTRIBUTORS

Jaap Bikker, DNB; Moncef Boughanmi, Rabobank; Henk van Broekhoven, ING Group; Hugo Everts, ING Group; Maarten Gelderman, DNB; Harry Horsmeier, Towers Perrin; Olav Jones, Fortis; Pieter Klaassen, ABN AMRO; Klaas Knot, DNB; Hartwig Liersch, ING Group; Raymond Monnik, Rabobank; André Pouw, Fortis; Francis Ruygt, ING Group; Gaston Siegelaer, DNB; Henrico Wanders, Univé Verzekeringen.
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