Table of Contents
Emerging Practices for Assessing Capital Adequacy
- EXECUTIVE SUMMARY ii2
- Objective ii2
- Why and How to Assess Capital Adequacy ii2
- The Four Principal Benefits of a Capital Adequacy Framework ii2
- Issues for Regulated Utilities and Public Power iii3
- Two Key Measurements: Economic Value and Financial Liquidity iii3
- Assessing Capital Adequacy Results in an Excess or a Shortage iii3
- Economic Value Involves Quantifying Market Risk, Credit Risk, and Operative Risk iv4
- Three Methods for Aggregating Market, Credit, and Operative Risks vi6
- Financial Liquidity vi6
- Example vi6
- Summary vii7
- ACKNOWLEDGEMENTS viii8
- I. INTRODUCTION 111
- II. DETERMINING NET ASSETS FOR ECONOMIC VALUE 1020
- III. INTRODUCTION TO COMPONENTS OF ECONOMIC CAPITAL 1323
- IV. MARKET RISK 1424
- 4.1 Definition of Market Risk 1424
- 4.2 Measurement of Market Risk 1525
- 4.3 Exposure Mapping 1626
- 4.4 Definition of Underlying Market Price Variable Movement Processes for Measuring Market Risk 1626
- 4.5 Measurement of Market Risk – Simulation Approach 2030
- 4.6 Measurement of Market Risk for Trading and Non-trading Activities 2232
- V. CREDIT RISK 2737
- VI. OPERATIONAL/OPERATIONS (OPERATIVE) RISK 3747
- VII. COMBINING MARKET, CREDIT AND OPERATIVE ECONOMIC CAPITAL 4353
- VIII. LIQUIDITY ADEQUACY 4959
- IX. CONCLUSION 5969
- X. NEXT STEPS 6070
- CAPITAL ADEQUACY EXAMPLE 6171
- APPENDIX A: CAPITAL ADEQUACY ISSUES FOR REGULATED UTILITIES 6878
- APPENDIX B: DETAILED EXAMPLE OF THE CALCULATION OF THE CREDIT CAPITAL REQUIREMENT 7080
- GLOSSARY 7282
- REFERENCES 7686