RAROC
Business & Finance abbreviation · Finance
| Stands for | Risk-adjusted return on capital |
|---|---|
| Categories | Business & Finance |
RAROC stands for Risk-adjusted return on capital, a finance abbreviation.
Banking performance measure that divides risk-adjusted net income, after deducting expected losses, by the economic capital allocated to cover unexpected losses. Banks use it to price loans, compare business lines and decide where to deploy capital.
Example: The corporate lending desk's RAROC of 11 percent fell short of the bank's 13 percent hurdle rate.
Usage notes
Developed at Bankers Trust in the late 1970s. Related measures include RORAC (return on risk-adjusted capital) and RARORAC, which adjust both numerator and denominator. RAROC spread as banks built internal economic-capital models alongside regulatory capital rules.
Related abbreviations
More finance abbreviations
- PE – Private equity
- PI – Profitability index
- PIK – Payment in kind
- PIPE – Private investment in public equity
- PV – Present value
- QoE – Quality of earnings
- RCF – Revolving credit facility
- ROA – Return on assets
- ROCE – Return on capital employed
- ROE – Return on equity
- ROI – Return on investment
- ROIC – Return on invested capital