February 2007
Intermediate to advanced
280 pages
15h 37m
English
Content preview from Value at Risk and Bank Capital Management
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ALLOCATED CAPITAL VERSUS UTILIZED CAPITAL 199
8.3 Capital Investment versus Capital Allocation
Before discussing the choice among alternative CaR measures for RAP measurement, we
must clarify the difference between capital investment and capital allocation (see Matten
2000). Let us consider a branch making a 100,000 USD 5-year fi xed-rate loan whose CaR
is equal to 4000 USD. The loan must be entirely funded at a 5-year fi xed internal transfer
rate by the treasury department. In fact, if instead the loan were assumed to be fi nanced
4% by equity capital and 96% by the treasury department at the 5-year internal transfer
rate, the result of the lendi ...
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