Hein Ploegmakers, Mark Schweitzer and Alireza Tourani Rad
Compares four risk‐adjusted performance measures and explains their importance, to banking in particular. Applies the risk‐adjusted return on capital (RAROC) measure to five…
Abstract
Compares four risk‐adjusted performance measures and explains their importance, to banking in particular. Applies the risk‐adjusted return on capital (RAROC) measure to five product classes at several branches of an international bank for six months, finds considerable differences between required and actual RAROCs and investigates the reasons why. Discusses both exogeneous factors (e.g. trading terms). Believes that banks can improve their internal capital markets by using risk‐adjusted performance measurement.