Bankers Trust, Capital Management and Allocation

Bankers Trust was proceeding with its regular annual review of “RAROC” (Risk Adjusted Return on Capital). RAROC was a methodology to allocate the bank’s equity capital to each business division and then to each individual asset within the bank. The purpose of RAROC was to make different assets and different lines of business more comparable in terms of their risk adjusted contribution to the value of the bank. Did RAROC need significant modification for the exceedingly competitive ‘90’s?