Abstract: This paper conducts a theoretical analysis of the problem of capital allocation in capital management. After summarizing the merits and defects of all kinds of theories, it establishes an M-V commercial bank capital allocation model based on the RAROC theory, so as to analyze the capital allocation problem in the system of banking homogeneity and branch heterogeneity. The empirical study of the capital allocation in the business division system of China Minsheng Bank indicates that this model is more effective than the popular M-V model based on VaR theory.

Key words: RAROC; M-V theory; capital allocation; commercial bank