Economic capital / Other risks [17]

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Bullet points include: May build up price to charge for a loan from following components: Interest cost, expected loss, expenses, overheads, capital charges But are participants in loan origination price makers or price takers? Component Interest cost Expected loss Expenses Overheads Total before capital charge Capital charge Total loan rate required Example Source Transfer pricing model Credit risk model Cost allocation model ditto See opposite Component Equity allocated Opportunity cost of equity After tax charge Tax rate Pre-tax capital charge

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