This paper describes the RAROC system developed at Bank of America (B of A) in order to examine how risk-based capital allocation models work. I begin by discussing the economic rational for allocating capital in a diversified organization like the B of A. Drawing on recent work by Froot and...

This paper examines the losses realized in bank failures. Losses are measured as the difference between the book value of assets and the recovery value net of the direct expenses associated with the failure. The author finds the loss on assets is substantial, averaging 30 percent of the failed...

We examine how analysts establish target prices for IPO firms and whether comparable firms used to support target prices are helpful in explaining IPO offer prices. During the bubble period of 1999 to 2000, the average offer price was set at a discount relative to comparable firm valuations. In...

This article examines the relationship between a mortgage originator's affiliation with the sponsor of a securitization or the servicer of the securitized loans and the default rate on the securitized mortgages. We find that default rates are significantly lower for securitizations in which the...