We introduce a new performance scheme for banks, inspired by the Du Pont scheme for corporates, which clarifies the relationship between return on equity (ROE), risk-adjusted return on capital (RAROC) and return on assets (ROA). The scheme highlights how common financial ratios as well as risk...

We introduce a new performance scheme for banks, inspired by the Du Pont scheme for corporates, which clarifies the relationship between return on equity (RoE), risk-adjusted return on capital (RAROC) and return on assets (RoA). The scheme highlights how common financial ratios risk factors...

To measure performance of individual businesses and maximize shareholder value for the firm as a whole, banks need to decide how much capital to allocate to each business and what cost of capital to charge. Capital is typically allocated to reflect differences in risks and/or regulatory capital...

As regulatory capital constraints in recent years have become more binding and less risk sensitive, banks are evaluating how they need to change their mix of businesses to ensure attractive returns to their shareholders. In this paper we analyze what the optimal choice of business lines is for a...