A case for convergence?

Economic capital was born about 15 years ago out of the desire to reflect risk in the decision-making processes of a bank. The two key questions an economic capital system was designed to answer were: how much shareholders' funds should the bank hold to achieve its desired credit rating, and how should the cost of capital be allocated to create appropriate risk-adjusted measures for strategic and tactical business decisions?

Basel II reflects these developments in banks by making regulatory c

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