What is ECONOMIC CAPITAL?

CAPITAL resources that a company allocates internally to conduct its operations and support its RISKS (including FINANCIAL RISK and OPERATING RISK). Economic capital, which is a key measure of SOLVENCY, serves to absorb unexpected losses and allow a firm to continue its operations. Also known as MANAGEMENT CAPITAL. See also CAPITAL ALLOCATION, REGULATORY CAPITAL, RISK CAPITAL, TIER 1 CAPITAL, TIER 2 CAPITAL.

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