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Diversification Credit

Diversification Credit

Definition

Diversification Credit — an enterprise risk management term (ERM) referring to the recognition of the "portfolio effect"—that is, the fact that the economic capital required at the enterprise level will be less than the sum of the capital requirements of the business segments calculated on a stand-alone basis. The diversification credit is typically apportioned to the business segments in a manner that attempts to preserve the relative equity of the capital attribution process.

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