Market and credit risks intertwine, reshaping economic capital measurement and portfolio management.
Market and credit risks can impact each other, affecting overall risk differently than expected. Factors like currency depreciation can benefit exporters but harm importers. A new framework helps banks measure economic capital and manage portfolios by considering how different risk factors influence each other. By analyzing clients' trade and cash flows, banks can identify exposures to similar market behaviors. This Factor endogenous behavior aggregation (FEBA) approach helps banks better understand and manage risks.