Interconnectivities and regulatory impact [39]

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Bullet points include: Full (or ‘economic’ or ‘holistic’) balance sheet on previous page applies to essentially any financial firm or organisation Innovation in Kemp (2009) is to specify the problem of how much capital an organisation should hold to be deemed ‘solvent’ in terms of the yield spread (versus risk-free) that would or should apply to customer liabilities were they to be traded freely in the market place Approach highlights a large number of the subtleties that arise in theory and in practice with solvency computations, e.g. Risk-reward trade-offs, relevance of matching, capital tiering, liquidity risk, tail risk (where it favours ES or Tail Value-at-Risk over VaR), different stakeholder perspectives (especially firm versus customers), market consistency, pro-cyclicality, macro-prudential supervision, own credit risk and sovereign risk

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