Managers can deploy and manage economic capital more effectively when they understand how their decisions add value to their organizations. Economic Capital: How It Works and What Every Manager Needs to Know presents new ways to define, measure, and implement management strategies by using recent examples, many from the sub-prime crisis. The authors also discuss the role of economic capital within the broader context of management responsibilities and activities as well as its relation to other risk management tools that are available to the modern risk manager.

Key Features

    • Explains ways to use economic capital in balancing risk and return
    • Evaluates solutions to problems encountered in establishing an economic capital framework
    • Emphasizes intuition
    • Draws special attention to embedding risk modelling approaches within economic capital frameworks


    Senior managers in banks, insurers, supervisors and regulators, risk professionals, and analysts

    Table of Contents

    Chapter 1: Measuring the Unexpected: Understanding Economic Capital Chapter 2: Show Me the Money: The Purpose of Economic Capital Chapter 3: You Manage What You Measure: Defining Economic Capital Chapter 4: Running the Numbers: Measuring Economic Capital Chapter 5: Facing Reality: Implementing Economic Capital Chapter 6: Team play: Economic Capital and its Context Chapter 7: What’s Next? The Future of Economic Capital


    No. of pages:
    © 2009
    Elsevier Science
    Electronic ISBN:
    Print ISBN:

    About the authors


    "Finally, a book that goes beyond an academic explanation of economic capital, but one that actually explains how to use it.  And the timing couldn’t be better.  Whether you are planning to upgrade your existing EC program or implementing a new one, Pieter Klaassen and Idzard van Eeghen have provided a wealth of ideas to guide practitioners through the many complex dilemmas that need to be navigated."

    --Terry Bulger, EVP, Risk Analytics & Portfolio Management, Bank of Montreal

    Klaassen and van Eeghen provide the first comprehensive treatment of the challenging subject of economic capital attribution and performance measurement. This book will undoubtedly become the ultimate reference for board of directors, senior management and risk professionals who are concerned about the survival of their firm from a solvability, performance and funding liquidity point of view, in the light of the recent events.

    --Michel Crouhy, Head of Research & Development, NATIXIS

    "This book is an extremely useful guide. It is written from a practitioner's viewpoint, which makes it especially practical; there is a refreshing absence of mathematical formulae, and academic discussions are quickly summarized, but there are plenty of references and footnotes for those who want to delve into these points deeper. The authors have sensibly avoided producing an orthodox "this is the right way to do it" rulebook, and clearly set out the different design choices that have to be made. I recommend this book to anyone interested in implementing or just studying economic capital."

    --Chris Matten, Partner, PricewaterhouseCoopers LLP

    "As the authors state rightly: "risks are not managed by models, but by people". With the increased importance of economic capital models for the management of financial institutions, senior managers need to understand clearly the concepts, assumptions, and limitations of these model