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   Bank Capital and Risk Management:
     
     A. Pricing Capital in Warehousing Activi...
     












 

Bank Capital and Risk Management:

A. Pricing Capital in Warehousing Activities

The main conceptual building blocks in a system of capital allocation and pricing are as follows:

    1. Capital allocation is not capital pricing
    2. Prices pay capital providers for systematic risk exposures
    3. Prices pay capital providers for corporate financing imperfections
    4. Prices pay capital providers for intra-corporate financing imperfections

Together these lead to a system that both prices capital in various uses and determines its allocation. We take them one at a time.

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