Economic capital of bank and methods its aggregation

Kyshakevych Bohdan
Doctor of Economics, Professor, Head of the Department of Economic Cybernetics and Innovation of the Ivan Franko Drohobych State Pedagogical University, Clasic Private University, e-mail:b_kyshakevych@ukr.net

Luchakivskyy Andrew
postgraduate student of Ivan Franko Drohobych State Pedagogical University, Clasic Private University, e-mail:happyandrew@bk.ru

Cite this article:

Kyshakevych, B., Luchakivskyy, A. (2016). Statehichnyy development construction complex of ukraine: innovation-oriented approach. Ed.: М.D. Baldzhy (ed.-in-ch.) and others [Systema pensiinoho zabezpechennia Ukrainy ta yevrointehratsiini protsesy; za red.: М. D. Baldzhy (gol. red.)], Scientific Bulletin of the Odessa National Economic University (ISSN 2313-4569), Odessa National Economics University, Odessa, No. 7 (239), pp. 16-31.

Abstract

In the article the comparative description of the concepts of economic and regulatory capital was done. The methods of aggregation of economic capital of the bank were analyzed as well as approaches to the evaluation of the effect of aggregating risk were considered. It is shown that economic capital accounts for a much wider range of risks than the regulatory capital and may serve as an important indicator of the financial stability of the bank. The article stresses that for the aggregation of economic capital in practice most commonly used methods are variance-covariance and kopul. It is noted that the kopula based aggregation on the one hand allows one to take into account the nonlinearity, but the construction of joint distributions and estimation of accuracy parameterization in case of kopuls is very complex tasks. It is shown that in order to be able to use the variancecovariance method it is needed to accept the assumption that the random vector of losses are multidimensional normally distributed, that eliminates the difference between short and long open positions in the bank.

Keywords

aggregation of risk, economic capital, financial stability, regulatory capital, aggregation methods, the effect of aggregation.

JEL classification: R400

UD classification: 330.4:336.71

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