Economic Capital and Financial Risk Management for Financial Services Firms and Conglomerates

by Rev Joseph Lienhard, John M McDermott S

Overview

The authors present a comprehensive and timely discussion of economic capital and financial risk management for financial services firms and conglomerates. Topics covered include: the different types of risks that firms collect; risk governance issues; how stress testing can be used to measure risk; the provision of a clear and precise definition of economic capital; the different types of capital that are eligible to back regulatory capital, and; the development of models that can be used to estimate a firm's economic capital requirements. A unique feature of the book is that, for the first time, the economic capital requirements of financial services firms across the entire risk spectrum, from the short end to the long end, are considered in one book. The authors develop models to estimate the economic capital requirements of banks, asset management firms, life and non-life insurance firms, pension funds, and the financial services conglomerates that comprise these firms. Economic capital is compared to regulatory capital and regulatory capital arbitrage is discussed. The diversification benefit present in financial services conglomerates is quantified and the practical management of this diversification benefit is dealt with. The authors give new insights into capital management and performance measurement for financial services conglomerates and provide detailed descriptions of the main financial services firm regulatory capital changes that are ongoing at the time of writing. This superb and original book charts new ground in the practical application of economic capital for financial services firms and conglomerates. It is required reading for all capital allocation and risk professionals.

Product Details

ISBN-13:	9781349518388
Publisher:	Palgrave Macmillan UK
Publication date:	01/14/2014
Series:	Finance and Capital Markets Series
Edition description:	1st ed. 2006
Pages:	325
Product dimensions:	5.51(w) x 8.50(h) x (d)

About the Author

BRUCE PORTEOUS is currently Head of Financial Risk with Standard Life Bank in Edinburgh, Scotland. He has a degree in Mathematical Statistics from Edinburgh University, Scotland, and postgraduate degrees, including a PhD, in Mathematical Statistics from Cambridge University, England. He is a Fellow of the Faculty of Actuaries in Scotland and a Fellow of the Actuarial Society of India. His business exposure includes Marketing, Corporate Finance, Corporate Development, International Development and Risk Management experience with Standard Life in the life insurance, retail banking, health insurance and asset management financial services sectors. He has also gained international M & A, corporate restructuring and market entry experience with Tillinghast Towers Perrin in London. PRADIP TAPADAR is a Research Associate at the Genetics and Insurance Research Centre at Heriot Watt University in Edinburgh, Scotland. He is currently pursuing a PhD in Genetics and Insurance and has a degree, and a postgraduate degree, in Mathematical Statistics from the Indian Statistical Institute, Calcutta, India. He also has a post graduate degree in Actuarial Mathematics from Heriot Watt University. He is a Fellow of the Faculty of Actuaries in Scotland and a Fellow of the Actuarial Society of India. His business exposure includes life insurance Marketing and Corporate Finance experience with HDFC Standard Life Insurance Company, a joint venture life insurance firm formed by Standard Life and HDFC, based in Mumbai, India. He has similar UK experience gained with Standard Life in Edinburgh, Scotland.

Table of Contents

Preface. Introduction Risk Types, Collection and Mitigation Risk Governance Stress Testing to Measure Risk Economic Capital Types of Capital The Stochastic Model Economic Capital for Banks Economic Capital for Non Profit Life Insurance Firms and General Insurance Firms Economic Capital for Asset Management Firms Economic Capital for With Profits Life Insurance and Pension Funds Financial Services Conglomerates Capital Management and Performance Measurement in Practice Regulatory Change Summary and Conclusions References Appendices