Credit Ratings of the Banking Sector
AbstractIn this paper we analyse the credit rating transitions of banks in Europe, the United States and Japan by using a competing risks model. We have distinguished two types of rating transitions: upgrading and downgrading. We have used some bank characteristics, like country of domicile, type of bank, initial rating, as explanatory variables in our model. We have found that downgrading and upgrading are different types of processes. Downgrading is a memoryless process, whereas upgrading is not. The longer a rating has not changed, the higher the probability that it will be upgraded. Furthermore, the type of bank and country (Japan) matters in the downgrading process but not in the upgrading process. Banks which have a speculative rating show much more volatility in both upgrading and downgrading intensities than banks with an investment rating.
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Bibliographic InfoPaper provided by Netherlands Central Bank, Research Department in its series WO Research Memoranda (discontinued) with number 714.
Date of creation: Jan 2002
Date of revision:
credit ratings; banking; duration models;
Find related papers by JEL classification:
- C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G39 - Financial Economics - - Corporate Finance and Governance - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-06-16 (All new papers)
- NEP-CFN-2003-06-16 (Corporate Finance)
- NEP-RMG-2003-06-16 (Risk Management)
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