Credit Ratings of the Banking Sector
In 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.
|Date of creation:||Jan 2002|
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- Anil Bangia & Francis X. Diebold & Til Schuermann, 2000.
"Ratings Migration and the Business Cycle, With Application to Credit Portfolio Stress Testing,"
Center for Financial Institutions Working Papers
00-26, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Bangia, Anil & Diebold, Francis X. & Kronimus, Andre & Schagen, Christian & Schuermann, Til, 2002. "Ratings migration and the business cycle, with application to credit portfolio stress testing," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 445-474, March.
- Pamela Nickell & William Perraudin & Simone Varotto, 2001.
"Stability of ratings transitions,"
Bank of England working papers
133, Bank of England.
- Nickell, Stephen J, 1979. "Estimating the Probability of Leaving Unemployment," Econometrica, Econometric Society, vol. 47(5), pages 1249-1266, September.
- Lee, Lung-Fei, 1983. "Generalized Econometric Models with Selectivity," Econometrica, Econometric Society, vol. 51(2), pages 507-512, March.
- Lando, David & Skodeberg, Torben M., 2002. "Analyzing rating transitions and rating drift with continuous observations," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 423-444, March.
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