Bankers Trust and the Birth of Modern Risk Management

This paper discusses the origins of modern #riskmanagement concepts and applications in the #financialindustry, which were developed at Bankers Trust in the 1970s. The bank's "Resources Management" group applied #probability theory to measure #marketrisk, #creditrisk, #liquidityrisk, and #operationalrisk, which were later brought together in a metric called Risk Adjusted Return On Capital (RAROC). RAROC was used to evaluate profitability, guide strategic planning, capital allocation, and incentive compensation. The article also discusses how Bankers Trust's risk management culture deteriorated after 1995, leading to its acquisition by #deutschebank Bank in 1998.

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