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Generally accepted rating principles: A primer

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  • Krahnen, Jan Pieter
  • Weber, Martin

Abstract

Bank internal ratings of corporate clients are intended to quantify the expected likelihood of future borrower defaults. This paper develops a comprehensive framework for evaluating the quality of standard rating systems. We suggest a number of principles that ought to be met by 'good rating practice'. These 'generally accepted rating principles' are potentially relevant for the improvement of existing rating systems. They are also relevant for the development of certification standards for internal rating systems, as currently discussed in a consultative paper issued by the Bank for International Settlement in Basle, entitled 'A new capital adequacy framework'. We would very much appreciate any comments by readers that help to develop these rating standards further. --

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Bibliographic Info

Paper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2000/02.

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Date of creation: 2000
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Handle: RePEc:zbw:cfswop:200002

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Keywords: corporate rating; credit risk management; capital adequacy; banking supervision;

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References

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  1. Machauer, Achim & Weber, Martin, 1998. "Bank behavior based on internal credit ratings of borrowers," Journal of Banking & Finance, Elsevier, vol. 22(10-11), pages 1355-1383, October.
  2. Weber, Martin & Krahnen, Jan Pieter & Voßmann, Frank, 1998. "Risikomessung im Kreditgeschäft: Eine empirische Analyse bankinterner Ratingverfahren," Sonderforschungsbereich 504 Publications 98-45, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  3. Hand, John R M & Holthausen, Robert W & Leftwich, Richard W, 1992. " The Effect of Bond Rating Agency Announcements on Bond and Stock Prices," Journal of Finance, American Finance Association, vol. 47(2), pages 733-52, June.
  4. Marshall E. Blume & Felix Lim & A. Craig Mackinlay, 1998. "The Declining Credit Quality of U.S. Corporate Debt: Myth or Reality?," Journal of Finance, American Finance Association, vol. 53(4), pages 1389-1413, 08.
  5. repec:fth:pennfi:67 is not listed on IDEAS
  6. Mark Carey, 1998. "Credit Risk in Private Debt Portfolios," Journal of Finance, American Finance Association, vol. 53(4), pages 1363-1387, 08.
  7. Elsas, Ralf & Henke, Sabine & Machauer, Achim & Rott, Roland & Schenk, Gerald, 1998. "Empirical analysis of credit relationships in small firms financing: Sampling design and descriptive statistics," CFS Working Paper Series 1998/14, Center for Financial Studies (CFS).
  8. Edward I. Altman & Anthony Saunders, 1996. "Credit Risk Measurement: Developments over the Last 20 Years," New York University, Leonard N. Stern School Finance Department Working Paper Seires 96-3, New York University, Leonard N. Stern School of Business-.
  9. Elsas, Ralf & Krahnen, Jan Pieter, 1998. "Is relationship lending special? Evidence from credit-file data in Germany," CFS Working Paper Series 1998/05, Center for Financial Studies (CFS).
  10. Marshall E. Blume & Felix Lim & A. Craig MacKinlay, . "The Declining Credit Quality of US Corporate Debt: Myth or Reality?," Rodney L. White Center for Financial Research Working Papers 3-98, Wharton School Rodney L. White Center for Financial Research.
  11. Machauer, Achim & Weber, Martin, 1998. "Bank behavior based on internal credit ratings of borrowers," CFS Working Paper Series 1998/08, Center for Financial Studies (CFS).
  12. Marshall E. Blume & Felix Lim & A. Craig MacKinlay, . "The Declining Credit Quality of US Corporate Debt: Myth or Reality?," Rodney L. White Center for Financial Research Working Papers 03-98, Wharton School Rodney L. White Center for Financial Research.
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