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CAPITAL PRIORITIES: PRACTICAL ADVICE ON IMPLEMENTING RAROC
The most important priority in implementing RAROC (risk-adjusted return on capital) for effective balance shee t management is validating expected losses. A bank should expect it to take at least a year to develop a good working model. A concrete example of a commercial lending model that was developed in response to this need is given in this article.
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FromJournal of Lending & Credit Risk Management, May 99, pp.18-2 3