Optimal Risk-Return Trade-Offs of Commercial Banks
Author | : Jochen Kühn |
Publisher | : Springer Science & Business Media |
Total Pages | : 153 |
Release | : 2006-09-28 |
Genre | : Business & Economics |
ISBN | : 3540348212 |
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This book criticizes the fact that profitability measures derived from capital market models such as the Sharpe ratio and the reward-to-VaR ratio are proposed for loan portfolios, although it is not proven whether their risk-return trade-offs are optimal for banks. The authors demonstrate that even the reward-to-VaR ratio, which is developed for valuating loan portfolios, can be highly misleading. They also show how market discipline, capital requirements, and insured deposits affect decision-making.