The above discussion is helpful for clarifying the measurement of risks in financial businesses with non-warehousing functions. What should the relationship be between these risks and the market value of the firm’s capital? Non-warehouse businesses often require little book capital, but can have substantial market value. Can we associate this market value with the economic capital required to support the risks? After we have measured risk, we need to pair that risk against some measure of economic capital. Once again, adding firm operating profits to the equation requires some work to create a consistent definition of capital.

The basic point is twofold. First, the sources of value within the firm can be expressed either as the value of tangible assets or as the value of intangible assets. We need to make this distinction to know what it is we have been counting as capital all along. Second, these sources of value are only useful for capital to the extent that they can be turned into cash. We will therefore have to struggle with the collateralizability of the sources of financial firm value. This is what is meant by firm ‘collateral on call.’