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At a prominent financial institution, a team of credit risk experts is analyzing the relationship between regulatory capital and economic capital in the context of different risk factors. During their discussion, they thoroughly evaluate the differences in the methodologies used to calculate these two types of capital and their respective applications within the institution. Which of the following statements would accurately sum up their agreement when contrasting regulatory capital with economic capital?
A
Firm-wide economic capital is typically equal to the sum of the separately calculated capital amounts for credit risk, market risk, and operational risk.
B
An increase in the probability of default of a loan portfolio increases economic capital, while leaving regulatory capital unchanged.
C
Economic capital is the amount of capital a bank needs to cover its expected losses, while regulatory capital is the amount of capital a bank needs to cover its unexpected losses.
D
Firm-wide economic capital typically considers correlations between credit risk, market risk, and operational risk.