The Research On Raroc Based Economical Capital Allocation In Banks And Application

With the challenging of the foreign banks after china's entring WTO and the deadline of the BaselⅡ, it has been a great issue for the chinese banks to raise the bank's ratio of capital to risk assets and improve the economic capital management so as to associated revenue with risk.Economic capital is the capital at risk to cover the unexpected loss of banks, and economic capital management has proved to be greatly uesful for banks to realise the self-regulation and self-constraint. With the deepening of the financial crisis and the strengthen of shareholders'awareness of the capital return, the bankers should take into account not only the speed of asset expansion,but also the risks arising from expansion,and mustassociatedrevenue with risk. The paper discuss Risk Adjusted Return on Capital(RAROC), which main function is capital allocation, controll of risk, performance evaluation and strategy decision. RAROC is widely impleted in many areas of advanced internatinol banks in view of its great advantage. Domestic banks have made rapid progress in spite of their disadvantages, but the economic capital soft constraint is always a problem for the chinese commercial banks, which do harm to the economic capital management and the quality of assets. This has been the main obstacle of domestic banks to realise the sustainable development . To settle this problem, the paper introduces the advanced experience and successful examples of the Western commercial banks, and put forward that in the economic capital constraints environment,the traditional quantitative expansion mode should be changed,China's commercial banks are required to conduct operational transformation,and vigorously developing IRB, RAROC , Intermediary Business and retail Banking business.