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The goal of any capital calculation should be to hold capital for the unknown. Given the special attributes of retail loans, lenders should strongly consider approaches that can distinguish between controllable and uncontrollable volatility in the portfolio. Models built on the framework of commercial lending or traded instruments will not likely be well suited to this effort.

Since economic capital is used to determine the effectiveness of a given product line and guide investment decisions, having the best measure of capital has important implications for investment decisions, executive compensation, and strategic initiatives.

Predictive Analytics can provide economic capital calculations for all of your retail portfolios that integrate well with enterprise risk measurement.

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