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Innovations in performance measurement in banking

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  • Ralph C. Kimball

Abstract

In banking over the past 10 years, management accountants have been instrumental in the creation of new management processes and performance systems. Their innovations have enabled banks to create internal capital markets, measure risks so as to facilitate their proper hedging and pricing, and create risk-based performance standards for lines of business. They have also made great progress in creating data bases and analytical tools to resolve strategic conflicts.> This article discusses the evolution of commercial banks into semiautonomous lines of business and the managerial issues and challenges that this organizational change has created. It goes on to describe the development of funds transfer systems, the allocation of risk-based capital, and the creation of risk-adjusted hurdle rates. Unresolved issues in bank management are also reviewed, such as the problem of "adding up" in the allocation of capital, the valuation of customer relationships, and the creation of objective measures of credit risk.

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Bibliographic Info

Article provided by Federal Reserve Bank of Boston in its journal New England Economic Review.

Volume (Year): (1997)
Issue (Month): May ()
Pages: 23-38

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Handle: RePEc:fip:fedbne:y:1997:i:may:p:23-38

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Keywords: Banks and banking - Ratio analysis;

References

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  1. Katerina Simons, 1996. "Value at risk: new approaches to risk management," New England Economic Review, Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, issue Sep, pages 3-13.
  2. Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  3. Robert C. Merton & André Perold, 1993. "Theory Of Risk Capital In Financial Firms," Journal of Applied Corporate Finance, Morgan Stanley, Morgan Stanley, vol. 6(3), pages 16-32.
  4. Edward Zaik & John Walter & Gabriela Retting & Christopher James, 1996. "Raroc At Bank Of America: From Theory To Practice," Journal of Applied Corporate Finance, Morgan Stanley, Morgan Stanley, vol. 9(2), pages 83-93.
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Cited by:
  1. Paul Frijters, 1998. "The sale of relational capital through tenure profiles and tournaments," Discussion Papers Series 443, School of Economics, University of Queensland, Australia.
  2. Tharusha N. Gooneratne & Zahirul Hoque, 2013. "Management control research in the banking sector: A critical review and directions for future research," Qualitative Research in Accounting & Management, Emerald Group Publishing, Emerald Group Publishing, vol. 10(2), pages 144-171, July.
  3. Christian Gourieroux & Jean-Paul Laurent & Olivier Scaillet, 2000. "Sensitivity Analysis of Values at Risk," Working Papers, Centre de Recherche en Economie et Statistique 2000-05, Centre de Recherche en Economie et Statistique.
  4. Flavio Bazzana, 2001. "I modelli interni per la valutazione del rischio di mercato secondo l'approccio del Value at Risk," Alea Tech Reports, Department of Computer and Management Sciences, University of Trento, Italy 011, Department of Computer and Management Sciences, University of Trento, Italy, revised 14 Jun 2008.
  5. Stoughton, Neal & Zechner, Josef, 1999. "Optimal Capital Allocation Using RAROC And EVA," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2344, C.E.P.R. Discussion Papers.
  6. Stoughton, Neal M. & Zechner, Josef, 2007. "Optimal capital allocation using RAROC(TM) and EVA(R)," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 16(3), pages 312-342, July.

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