Risk adjusted performance measurement and capital allocation for trading desks within banks

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.

Citation

Ploegmakers, H., Schweitzer, M. and Tourani Rad, A. (2000), "Risk adjusted performance measurement and capital allocation for trading desks within banks", Managerial Finance, Vol. 26 No. 3, pp. 39-50. https://doi.org/10.1108/03074350010766576