Research Of The Economic Capital Allocation Efficiency Of Chinese Commercial Banks

Since the 2008 financial crisis, the risks of financial banks are increasingly complicated so that commercial banks should improve their risk management tools and risk management ability. Meanwhile, a new concept “RAROC”(Risk-Adjusted Return on Capital, risk adjusted return on capital) was also be introduced to evaluate the performance of commercial banks. Based on RAROC model and starting from the theory of the economic capital allocation of commercial banks, this paper is focused on RAROC of 13 commercial banks of China. On one hand, by the horizontal analysis, efficiency of economic capital allocation of different banks was discussed. On the other hand, by the vertical analysis, efficiency of economic capital allocation of different years of the one bank was discussed too. Therefore, we can come to the conclusion that economic capital should be allocated to high RAROC operations and different business branches should also be balanced. As for the high risk branch fund business, commercial banks should operate according to the actual situation. To Chinese commercial banks, it is significant to improve the level of economic capital measurement and allocation system, and strengthen the personnel training of professional economic capital.