Application of raroc model in bank

Introduction Several economic crises took place in recent times, largely caused by the poor management of banking leverage. A multiple is applied to the unexpected outstanding balance at the time of default. As guidelines, for example, effectively assign the same the progressive deregulation capital requirements capital requirement to all commercial loans, regard- aside of the industry continues, banks are choosing less of their degree of risk, while requiring no to provide an increasingly diverse set of products capital for taking deposits and positions in Treasury and services.

For several years prior to this, the Bank had egories of risk associated with its various activities: struggled with little success to measure performance Credit risk is the risk of loss due to borrower on a risk-adjusted basis.

Two questions gave reason to the study: whether the application of different methods for calculation of the RAROC would generate significantly different results?

raroc pdf

With a RAROC process in place, project at B of A is to support and promote the use senior management can evaluate the bank as a of RAROC in business decisions at all levels of the portfolio of businesses and make resource allocation organization. The recommendation is that banks adopt a prospective position, in the sense of modelling future scenarios, based on the information they have and by using effective models of performance estimates.

That occurs in the Bank of Brazil cases addressed in the beginning of the paragraph, and the existing difference is very small, as the p-value is also very close to 0. The reliability of the model used is confirmed by the use of the Backtest technique, in which the daily actual losses and earnings are compared with the percentage of cases in which the result was off the pre-established limits for maximum loss and the result was satisfying, as observed in the risk reports charts.

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(PDF) Raroc at Bank of America: From Theory to Practice