Emerging Practices for Capital Adequacy © Copyright 2003, CCRO. All rights reserved. 67 Comparison of Calculation Methodologies Available vs. Required Capital ($ millions) Sq. Root Sum of Squares Monte Carlo Simulation Simple Sum Available Capital - Debt 286 286 286 Required Economical Capital Market Risk 23 23 23 Credit Risk 0 0 0 Operative Risk 22 22 22 Diversification Effect - Across Risks -13 -11 0 Total Required Economic Capital 32 35 45 Economic Capital Adequacy 254 251 240 While this example illustrates a weak correlation among market risk, credit risk, and operative risk, which results in a simulated capital adequacy that is close to the square root sum of squares calculation, this may not be the case for other portfolios with different counterparties.