The Research On RAROC Based Economic Capital Allocation In Banks And Application

Nowadays capital constraint has become one of the most important problems in our banking industry. To solve the problem, the essential way will be to allocate bank capital reasonably, which can increase the efficiency of capital usage. In theoretical aspect, the method of Risk-Adjusted Return on Capital has many advantages relative to traditional research. It not only maximizes banks' income in the condition of economic capital being limited, but also strengthens the capacity of risk management.Beginning with the meaning of RAROC in this dissertation, we explain the relationship of risk, capital and income, solve the problem on how to make sure the quantity of regulate capital and economic capital. To obtain the result of RAROC, the mature technology of VaR is used to determine the quantity of three types of bank risks in detail. In this foundation, we make good use of the method of RAROC to do research about economic capital allocation and application emphatically. Specifically, after explaining the theoretical basis and meaning of bank economic capital allocation, VaR constraint is introduced to the mean—variance analytical frame, which discusses bank economic allocation in bank service portfolio facet. The economic capital quantity of three big risks faced by banks is considered into RAROC. Furthermore, we do research on how to allocate economic capital by way of the RAROC method in the overall facet. Considering to the practice of the method used in our banking industry, the majority of our banks can take use of the Basel II accord to consummate their procedure. What's more, RAROC can be revised in some degree Then it can be taken as the transitional tool for economic capital allocation at present.When the Basel II accord being carried out in our country comprehensively, the risk management's technology being enhanced greatly and regulate capital being close to economic capital, the method of RAROC based economic capital allocation will become the true target for the future of our banking industry. In the end, our banks can get rid of the difficult position of capital constraint essentially and innovate a new way of good circulation about "risk, capital and income", which can be helpful to realize the sustainable development of our banking industry as soon as possible.