Q&A Bank 6.13

[actually ..?]

Hi .. I'm a bit puzzled by Q6.13 part (iii) -

From part (i), I see the Regulatory Capital requirement is 6.8M
From part (ii), I see that the Economic Capital requirement is 3.9M {I was stumped by this question, but I'll take the answer as given for now}

My question/confusion: I don't see how if the company already holds the Regulatory Capital, it would need additional capital to fullfil the Economic Capital requirement, since (i)>(ii).

Any thoughts would be helpful...

Thanks!

 

[SpeakLife!]

I just worked through 6.13, and I have the same question as well . . . if the company already holds the regulatory capital requirement from part (i), which is larger than the capital requirement from part (ii), why would the company need to hold additional capital based on the capital requirement from part (ii)? Or is the wording of the question hanging us up here?

 

[Simon James]

On re-reading the question, I can see the confusion. The intention is to see how much capital is already on the balance sheet (ie Assets less Liabilities), and see what additional capital is required. But the wording is not helpful!

We will look at this one and see if it can be improved - thanks for pointing it out.

Simon

PS part (ii) uses the "square root of the sum of the squares" method.....

 

[SpeakLife!]

Thanks, Simon!