INNOVATIONS IN PERFORMANCE-MEASUREMENT IN BANKING

In banking over the past 10 years, management accountants have been in strumental in the creation of new management processes and performance systems. Their innovations have enabled banks to create internal capi tal markets, measure risks so as to facilitate their proper hedging an d pricing, and create risk-based performance standards for lines of bu siness. They have also made great progress in creating data bases and analytical tools to resolve strategic conflicts.This article discusses the evolution of commercial banks into semiautonomous lines of busine ss and the managerial issues and challenges that this organizational c hange has created. It goes on to describe the development of funds tra nsfer systems, the allocation of risk-based capital, and the creation of risk-adjusted hurdle rates. Unresolved issues in bank management ar e also reviewed, such as the problem of ''adding up'' in the allocatio n of capital, the valuation of customer relationships, and the creatio n of objective measures of credit risk.