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The concept of economic capital differs from regulatory capital in the sense that regulatory capital is the mandatory capital the regulators require to be maintained while economic capital is the best estimate of required capital that financial institutions use internally to manage their own risk and to allocate the cost of maintaining ...
A capital requirement (also known as regulatory capital, capital adequacy or capital base) is the amount of capital a bank or other financial institution has to have as required by its financial regulator. This is usually expressed as a capital adequacy ratio of equity as a percentage of risk-weighted assets.
Some researchers pointed out that the markets had become more vibrant at the same time as the regulation of the markets increased. That led to the creation of the term 'regulatory capitalism', which connected the terms 'regulatory state' and 'regulatory society' to the simultaneous rapid development of the capitalist system. [5]
With the financial crisis of 2007, and the introduction of Dodd–Frank Act, and Basel III, the minimum required regulatory capital requirements have become onerous.An implication of stringent regulatory capital requirements spurred debates on the validity of required economic capital in managing an organization's portfolio composition, highlighting that constraining requirements should have ...
Attempting to align economic and regulatory capital more closely to reduce the scope for regulatory arbitrage. While the final accord has at large addressed the regulatory arbitrage issue, there are still areas where regulatory capital requirements will diverge from the economic capital.
The new proposal would increase capital levels for big banks like JPMorgan Chase and Bank of America by 9% in aggregate, down by half from the original plan from more than a year ago, which set ...
Under the Basel II guidelines, banks are allowed to use their own estimated risk parameters for the purpose of calculating regulatory capital. This is known as the internal ratings-based (IRB) approach to capital requirements for credit risk. Only banks meeting certain minimum conditions, disclosure requirements and approval from their national ...
The total capital charge is calculated as the three-year average of the simple summation of the regulatory capital charges across each of the business lines in each year. In any given year, negative capital charges (resulting from negative gross income) in any business line may offset positive capital charges in other business lines without limit.