Economic Capital: The Quantum of Solace

The Iain Fleming short story “The Quantum of Solace” has been selected as the title of the new James Bond movie. The title is from a Fleming short story, First published in Cosmopolitan magazine in 1959, “Quantum of Solace” then became one of five stories collected in For Your Eyes Only in April 1960.  Fleming was trying to get at the Quanta (of solace) sufficient to be content; not necessarily the nature of solace. Fleming would have thought that nature best revealed through the novels of his own favorite author, Thomas Hardy. The short story is about trying to evaluate that quantum, the precise measure of “solace”. According to the short story, the Quantum of Solace is defined as "a precise figure defining the comfort/humanity/fellow feeling required between any pair of people. The concept was actually borrowed from an important influence on Fleming, writer W. Somerset Maugham.

‘Economic Return’ or Economic Capital is the banking industry’s version of Fleming’s Quantum of Solace, that quantum which will ensure that a process of events such as we experienced in the Credit Crunch, will never happen again. In a way that quantum of solace in the relationship between two people (the lender and the borrower) which ensures that certain stability, some contentment is retained in the relationship and on the aggregate scale that systemic peace is therefore enforced, something which in current circumstances we all may be convinced to pay just a little extra for.

Executive management need to be assured that the institution is conducting its lending business and risk position taking (whether for hedging or proprietarily) in a manner, or over a hurdle rate, that entails that in-astute practice, will never occur again. That in-itself is a laudable objective but one which is now necessary in terms of the modalities of banking practice which are emerging post Credit Crunch.

UL has many years of expertise, consulting, architecting and developing Financial Predictive Analytic modeling environments for Economic Capital.