Calculating the amount of regulatory capital to cover unexpected losses due to operational events in the upcoming year has caused problems because of difficulties in fitting probability distributions to data. It is consequently difficult to judge an appropriate level of capital that reflects the risk profile of a financial institution. We provide theoretical and empirical analyses to link the calculated capital to the sum of losses using appropriate statistical approximations. We conclude that, in order to reasonably reflect the associated risk, the capital should be approximately half the sum of losses, with a wide bound for the ratio of capital to sum.

This paper shows mainly the following results. 1) The debt to GDP ratio cannot diverge to infinity, that is, fiscal collapse is impossible. The necessary condition for this result is that the propensity to consume from the asset is positive. 2) The divergence of the debt to GDP ratio is prevented by inflation when the interest rate on government bonds is considerably higher than the real growth rate, and the inflation rate which is sufficient to prevent divergence of the debt to GDP ratio is smaller than the interest rate on government bonds. Only an inflation rate slightly greater than the difference between the interest rate on government bonds and the sum of the real growth rate and the propensity to consume from the asset is required. This inflation is not caused by policy but occurs naturally.

Reckless behavior by business leaders can be a systemic risk for individual firms and the economies in which the firms exist. We propose that a synthesis of behavioral economics, in particular prospect theory, and the study of psychopathy may help researchers better understand why some business leaders engage in high-risk criminal activity. We propose that psychopathy is associated with an abnormal response to negative consequences. Where traditional Prospect Theory proposes that people are loss avoidant, we propose that people high on the trait of psychopathy may be more motivated by gains and will be risk seeking in high reward/high risk situations for which most people will avoid risk. We propose two empirical study designs that may be used to test the framework in the future.