risk-adjusted return on capital


risk-adjusted return on capital
= RAROC
A measure of the performance of units within a bank or financial organization, be they managerial units, products, distributional units, or such treasury-based units as trading desks. It was developed by Bankers' Trust and the Bank of America in the 1980s. In its most common form RAROC allocates capital at risk to a unit and divides that into the return obtained from the unit. The capital is allocated in terms of a value-at-risk methodology. A refinement of this system is known as RAROC 2020.

Big dictionary of business and management. 2014.

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