Risk Management and Value Creation in Financial Institutions

Book Description
An analysis of the links between risk management and value creation
Risk Management and Value Creation in Financial Institutions explores a variety of methods that can be utilized to create economic value at financial institutions. This invaluable resource shows how banks can use risk management to create value for shareholders, addresses the advantages of risk-adjusted return on capital (RAROC) measures, and develops the foundations for a model to identify comparative advantages that emerge as a result of risk-management decisions. It is the only book needed for banking executives interested in the relationship between risk management and value creation.

From the Inside Flap
Increased competition among banks as well as pressure from shareholders for superior returns have forced financial institutions to focus on managing their value. But the idea of viewing risk management activities in banks from a risk-return perspective–and hence in the context of value creation–has not been analyzed on an industry or bank level until very recently.

Risk Management and Value Creation in Financial Institutions offers a close look at this subject by exploring both the theory and practice of corporate risk management in financial institutions. Author Gerhard Schroeck lays the foundations for developing a model that would allow banks to identify comparative advantages, examining where they should concentrate their risk management activities and how they should structure them. The book’s valuable insights provide financial intermediaries with a detailed analysis of the link between risk management and value creation, and will help them build economic value.

Schroeck starts with an investi-gation of this link by defining and discussing value maximization and risk management within a banking context. He also addresses whether there is empirical evidence that may connect the two. Schroeck then explores different financial theories on risk management and value creation, and shows you how to create a framework that encompasses both of them.

Risk Management and Value Creation in Financial Institutions moves forward to outline the fundamentals for effective risk measures and discusses how currently applied measures can help you consistently determine–in the context of a valuation framework–the various types of risk a bank faces. This comprehensive guide also investigates whether risk-adjusted performance measures, such as the widely known Risk-Adjusted Return on Capital (RAROC), are an adequate capital budgeting tool to measure economic performance of banks as well as identify value creation in them. Rounding out this comprehensive look at risk management and value creation in financial institutions, Schroeck shows you how to use the results gained from his analysis to make critical decisions on the relationship between risk management and value creation–from whether a bank should restructure to whether it should concentrate on its competitive advantages or divest, and much more.

Given the central role of risk in banks, understanding how to manage risk is crucial. Risk Management and Value Creation in Financial Institutions provides this understanding and gives you the knowledge to create economic value from prudent risk management.

Back Cover Copy
"This instructive and insightful book offers one of the first comprehensive discussions of the relationship between risk management and value creation in banks. Gerhard Schroeck provides a solid theoretical foundation for discussing the problem and clearly reduces the existing discrepancy between financial theory and the state-of-the-art risk management approaches currently used in the banking industry. His book is a superb reference and extremely valuable both for practitioners as well as academics."
–Dr. Manfred Steiner
Professor of Finance and Banking, University of Augsburg, Germany

Through an in-depth look at both the theory and practice of corporate risk management in financial institutions, Risk Management and Value Creation in Financial Institutions offers a variety of methods that can be utilized to create economic value at almost any financial institution. For the first time, this book bridges the gap between theory and practice in this field by:

* Deriving circumstances under which risk management at the corporate level can create value in banks
* Laying the theoretical foundations for a normative approach to risk management in banks
* Evaluating the practical heuristics of RAROC and economic capital as they are currently practiced
* Developing more detailed instructions on how to conduct risk management and how to measure value creation in banks



About the Author
GERHARD SCHRoECK has been a senior management consultant with Oliver, Wyman & Company in Frankfurt and London since 1997, where his specialty is to advise financial institutions on risk management issues and value creation. He received his PhD in finance and his MA in business administration from the University of Augsburg, Germany, and an MBA from the Joseph M. Katz Graduate School of Business at the University of Pittsburgh.