Charles Sanford, Bankers’ CEO, embraced Raroc and risk management generally. He used Raroc to decide how to allocate capital among the firm’s business lines, and to justify investment in ground-breaking businesses like derivatives and secondary loan trading, Borge noted.
Borge said that, today, he sees little evidence that banks are using risk tools in the same way. “I don’t know of any firm where risk management has really affected a strategic decision,” he said. When Borge asked his audience – which consisted of senior representatives of a number of large US regional and money centre banks, agencies and multilateral institutions – if any of their organisations based strategic decisions on risk analyses, the room remained silent.