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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.

Suggested Citation

  • Ralph C. Kimball, 1997. "Innovations in performance measurement in banking," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 23-38.
    • Handle: RePEc:fip:fedbne:y:1997:i:may:p:23-38
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    1. 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, vol. 9(2), pages 83-93, June.
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    Cited by:

    1. Gourieroux, C. & Laurent, J. P. & Scaillet, O., 2000. "Sensitivity analysis of Values at Risk," Journal of Empirical Finance, Elsevier, vol. 7(3-4), pages 225-245, November.
    2. Elliot, Viktor, 2018. "Funds Transfer Pricing in Swedish Savings Banks: An Exploratory Survey," Scandinavian Journal of Management, Elsevier, vol. 34(3), pages 289-302.
    3. Tharusha N. Gooneratne & Zahirul Hoque, 2013. "Management control research in the banking sector," Qualitative Research in Accounting & Management, Emerald Group Publishing Limited, vol. 10(2), pages 144-171, June.
    4. Izhar, Hylmun, 2012. "Measuring Operational Risk Exposures in Islamic Banking: A Proposed Measurement Approach," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 20, pages 45-86.
    5. Stoughton, Neal M. & Zechner, Josef, 2007. "Optimal capital allocation using RAROC(TM) and EVA(R)," Journal of Financial Intermediation, Elsevier, vol. 16(3), pages 312-342, July.
    6. Flavio Bazzana, 2001. "I modelli interni per la valutazione del rischio di mercato secondo l'approccio del Value at Risk," Alea Tech Reports 011, Department of Computer and Management Sciences, University of Trento, Italy, revised 14 Jun 2008.
    7. Phillip C. James, 2013. "An Analysis of the Factors Influencing the Adoption of Activity Based Costing (ABC) in the Financial Sector in Jamaica," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 3(7), pages 8-18, July.
    8. Phillip C. James, 2013. "An Analysis of the Factors Influencing the Adoption of Activity Based Costing (ABC) in the Financial Sector in Jamaica," International Journal of Business and Social Research, LAR Center Press, vol. 3(7), pages 8-18, July.
    9. Frijters, Paul, 2000. "The sale of relational capital through tenure profiles and tournaments," Labour Economics, Elsevier, vol. 7(4), pages 373-384, July.
    10. René Doff & Jan Bilderbeek & Bert Bruggink & Pieter Emmen, 2009. "Performance Management in Insurance Firms by Using Transfer Pricing," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 12(2), pages 213-226, September.

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    Keywords

    Banks and banking - Ratio analysis;

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