Economic Capital represents an internal risk-based measure that quantifies capital necessary to absorb unexpected losses across all risk types, typically at 99.9% confidence over one year. Unlike regulatory capital, economic capital reflects an institution's own assessment of its risk profile and correlations between risk categories. It serves as the foundation for RAROC calculations, strategic planning, and capital allocation decisions. A global insurance company might calculate that it requires $5 billion in economic capital to cover aggregate risks from underwriting, investment portfolios, and operational failures, even if regulatory minimums require only $3.5 billion.