RAROC profile and corporate credit pricing model derived from Pillar 3 disclosures.
Bank of America is a United States-based bank with approximately EUR 2.1tn of corporate credit exposure (EAD) under the A-IRB approach to credit risk capital. The numbers below come directly from Bank of America's most recent Pillar 3 CR6 regulatory filings and are used to model how this bank prices corporate credit facilities.
Bank of America is mid-sized by corporate EAD (11 of 59). Its cost-to-income ratio of 60.0% is in line with the European large-bank average (+10.2pp vs the 59-bank cross-section average of 49.8%). The corporate portfolio is predominantly investment-grade, with an EAD-weighted average PD of 0.7% against a cross-bank average of 2.1%.
Because the bank runs the advanced IRB approach, its own LGD and credit-conversion models drive capital requirements, which on our comparable sample deal typically produces tighter minimum spreads than foundation-IRB peers with identical obligor risk. Unsecured LGD disclosed at 27.5% is -9.4pp against the 36.8% cross-bank average, indicating recovery assumptions that are more favourable than the peer median — often a feature of senior-unsecured lending to large investment-grade obligors.
On the standardised BBB+ EUR 25M 5-year term loan used across every bank profile, Bank of America lands in the top half of the pricing ranking (#16 of 59), with a RAROC of 7.67% and a minimum spread of 243bp to reach the 12% hurdle. Within United States specifically, the bank ranks #3 of 7 on this same calculation.
| Parameter | Value | What it means |
|---|---|---|
| IRB approach | A-IRB | How the bank computes risk-weighted assets |
| Cost-to-income ratio | 60.0% | Operating cost share of net revenue |
| Effective tax rate | 24.0% | Applied to RAROC numerator after EL and funding |
| Average corporate PD | 0.73% | EAD-weighted probability of default |
| Avg LGD (unsecured) | 27.5% | Loss share if borrower defaults, no collateral |
| Avg LGD (secured) | 15.0% | Loss share with eligible collateral |
| Funding spread | 12bp | Bank's wholesale funding cost above risk-free |
| Corporate EAD | EUR 2.1tn | Total exposure at default to corporates |
On a representative BBB+ rated, 5-year term loan of EUR 25M at 150bp spread with a 20bp commitment fee, Bank of America would generate an estimated RAROC of 7.67% against a typical 12% bank hurdle rate. To hit that hurdle on this exact deal, the bank would need a minimum spread of 243bp. This deal is significantly below target — the bank would either reprice it or decline.
| Component | Value |
|---|---|
| Annual revenue (spread + fees) | EUR 385,000 |
| Operating cost | EUR 154,000 |
| Expected loss (PD × LGD × EAD) | EUR 28,750 |
| Capital required (FPE) | EUR 2,451,320 |
| RAROC (after tax) | 7.67% |
| Min spread to hit 12% RAROC | 243bp |
Out of 59 banks in the OpenRAROC dataset, Bank of America ranks #16 by RAROC on this sample deal.
| Rank | Bank | Country | RAROC | Min spread |
|---|---|---|---|---|
| 1 | Qatar National Bank | Qatar | 9.00% | 203bp |
| 2 | DBS Group | Singapore | 8.18% | 224bp |
| 3 | JP Morgan | United States | 8.12% | 231bp |
| 4 | ICBC | China | 8.06% | 233bp |
| 5 | China Construction Bank | China | 8.06% | 233bp |
| 15 | Credit Agricole | France | 7.67% | 243bp |
| 16 | Bank of America | United States | 7.67% | 243bp |
| 17 | Wells Fargo | United States | 7.67% | 243bp |
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