Podem ocorrer variacoes na formulacao do RAROC
em funcao das premissas empregadas (Ferson, 2013).
"Now some of them are beginning to move to using an actual RAROC
model to say, 'What are the banks getting from us?'"
value indicates the size of the rewards brought about by the loss of one unit of capital, and effectively measures the efficiency of the risk of earning revenue; therefore, the bigger the value the better.
It is proposed for settling these issues the development of a model that will measure trade credit extension profitability adjusted to credit risk and, to this end, the Theory of Restriction (TOC) profitability concept and RAROC
model (Risk-Adjusted Return on Capital) will be adopted for its calculation.
While transactions in the past were based on a company's appetite for risk and that appetite alone, banks have started to move toward an environment where concerns about risk adjusted return on capital (RAROC
) figure more heavily into lending decisions, meaning that banks are becoming more concerned not just with the volume, but with optimizing the return on risky investments and using allocated capital more efficiently.
As opposed to mentioning ultimate objectives, such as estimating enterprise-wide RAROC
by relationship and line of business, it is more useful to think in terms of lower-level tactics.
Most recently, industry leaders have begun to take a more holistic view of risk, capital and return by implementing enterprise-risk models based on methodologies such as dynamic financial analysis (DFA), value at risk (VaR) and risk-adjusted return on capital (RAROC
), reports Risk Management Solutions, Newark, Calif., a leading provider of catastrophe models.
reports that that risk-adjusted return on capital (RAROC
) requirements are the key drivers when banks determine if a company is granted credit.
Risk adjusted return on capital (RAROC
)--a measure of profitability of a business activity based on whether its return on capital is above or below its equity hurdle rate--is 20 percent.
With respect to market risks, methodologies such as Bankers Trust's RAROC
Compensation, including bonuses, should be linked to a meaningful bottom-line measure such as risk-adjusted return on capital (RAROC
Proponents of RAROC
(risk-adjusted rerum on capital) and similar mechanisms argue that, on correctly risk-adjusted bases, tier two capital levels generally should be around 5 percent.