Banks’ internal capital markets: how do banks allocate capital internally?

Rasna Bajaj (), Andrew Binmore (), Rupak Dasgupta () and Quynh-Anh Vo
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Rasna Bajaj: Bank of England
Andrew Binmore: Bank of England
Rupak Dasgupta: Bank of England

Bank of England Quarterly Bulletin, 2018, vol. 58, issue 2, 1-10

Abstract: Banks allocate capital to their business lines to assess those lines’ relative performance, which informs their strategic decisions. Capital allocation, together with Fund Transfer Pricing (FTP), are two important internal processes used by banks to support business optimisation decisions. This article discusses the range of methods that banks use to allocate equity capital to their business lines, drawing on reviews conducted by the Prudential Regulation Authority (PRA). It complements a previous Quarterly Bulletin article which describes banks’ FTP practices. We also discuss in this article potential implications of capital allocation methods for banks and prudential regulation.

Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:boe:qbullt:0238

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