In both applications, the measurements of overall portfolio risk are used to determine the prices for loans and other products needed to achieve hurdle rates-of-return on shareholder equity, to assess the adequacy of an organization’s overall equity capital, as well as for other management purposes.
These efforts to develop more centralized risk management systems are being driven by normal competitive pressures to maximize synergies within financial organizations, such as joint-production and cross-selling opportunities involving multiple subsidiaries. This, in turn, is the logical outcome of the organization’s desire to produce and market its products most efficiently and to achieve the highest risk-adjusted returns for shareholders.