Evaluating internal credit rating systems depending on bank size
- Under a new Basel capital accord, bank regulators might use quantitative measures when evaluating the eligibility of internal credit rating systems for the internal ratings based approach. Based on data from Deutsche Bundesbank and using a simulation approach, we find that it is possible to identify strongly inferior rating systems out-of time based on statistics that measure either the quality of ranking borrowers from good to bad, or the quality of individual default probability forecasts. Banks do not significantly improve system quality if they use credit scores instead of ratings, or logistic regression default probability estimates instead of historical data. Banks that are not able to discriminate between high- and low-risk borrowers increase their average capital requirements due to the concavity of the capital requirements function.
| Author: | Hergen Frerichs, Mark WahrenburgORCiDGND |
|---|---|
| URN: | urn:nbn:de:hebis:30-17892 |
| Parent Title (English): | Universität Frankfurt am Main. Fachbereich Wirtschaftswissenschaften: [Working paper series / Finance and accounting] Working paper series, Finance & Accounting ; No. 115 |
| Series (Serial Number): | Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting (115) |
| Publisher: | Univ., Fachbereich Wirtschaftswiss. |
| Place of publication: | Frankfurt am Main |
| Document Type: | Working Paper |
| Language: | English |
| Year of Completion: | 2003 |
| Year of first Publication: | 2003 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2005/10/07 |
| Tag: | Basel II; bank regulation; credit ratings; credit risk |
| GND Keyword: | Deutschland; Kreditwürdigkeit; Bank; Kreditrisiko; Eigenkapitalgrundsätze; Basler Eigenkapitalvereinbarung, 2001; Basler Eigenkapitalvereinbarung, 2010; Basler Eigenkapitalvereinbarung <1988> |
| Issue: | September 2003 |
| Page Number: | 51 |
| HeBIS-PPN: | 210781106 |
| Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| JEL-Classification: | C Mathematical and Quantitative Methods / C5 Econometric Modeling / C52 Model Evaluation and Selection |
| Licence (German): |  Deutsches Urheberrecht |
