Banking Rating Systems for IRB: Comparison of Three Systems from German-speaking Environment
JEL: G11, G21, G24, G32
hard-facts, rating, risk management, soft-facts
The aim of the article is to compare several rating systems used by banks and their affiliates, especially in German-speaking countries. The research is focused on the rating of business entities, more precisely the corporate ones,
(especially limited liability companies or joint-stock companies). In particular, two aspects of the rating of the corporations are highlighted in the rating system comparison, namely: (i) which quantitative indicators are used for the calculation of the hard-facts and (ii) how the soft-facts are included in the rating system. The result of the research shows, that concerning the quantitative indicators (i), the highest emphasis is put on the capital structure of an enterprise (whether in the form of Equity to Liabilities or Equity to Total assets) in all compared rating systems. Concerning the other indicators used for the calculation, the monitored rating systems are different, and the total number of indicators also differs (from 6 to 9). For soft-facts (ii) all rating systems agree on some of the queries (e.g. the sensitivity of the rated entity to market fluctuations), but otherwise the number and the topics of the queries overlap only partially.
Bakhtiari, S. (2017). Corporate Credit Ratings: Selection on Size or Productivity? International Review of Economics & Finance, 49, pp. 84-101. DOI: 10.1016/j.iref.2017.01.023.
Bank “A”, “B” and “C” Rating Manuals (2011), (2004), (2008).
Berg, T. and Koziol, P. (2017). An Analysis of the Consistency of Banks’ Internal Ratings. Journal of Banking & Finance, 78, pp. 27-41. DOI: 10.1016/j.jbankfin.2017.01.013.
Basel II (2006). Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework - Comprehensive Version. Available at: http://www.bis.org/publ/bcbs128.htm.
BIS (2010). Basel III: Ein globaler Regulierungsrahmen für widerstandsfähigere Banken und Bankensysteme. Available at: http://www.bundesbank.de/Redaktion/DE/Downloads/Aufgaben/Bankenaufsicht/Basel/2010_12_basel3_ein_globaler_regulierungsrahmen_fuer_widerstandsfaehigere_banken_und_bankensysteme.pdf?__blob=publicationFile.
Danielsson, J. (2002). The Emperor Has No Clothes: Limits to Risk Modelling. Journal of Banking & Finance, 26, pp. 1273-1296. DOI: 10.1016/S0378-4266(02)00263-7.
Danı́elsson, J., Son Shin, H. and Zigrand, J.-P. (2004). The Impact of Risk Regulation on Price Dynamics. Journal of Banking & Finance, 28, pp. 1069-1087. DOI: 10.1016/S0378-4266(03)00113-4.
Fracassi, C., Petry, S. and Tate, G. (2016). Does Rating Analyst Subjectivity Affect Corporate Debt Pricing? Journal of Financial Economics, 120, pp. 514-538. DOI: 10.1016/j.jfineco.2016.02.006.
Jankowitsch, R., Pichler, S. and Schwaiger, W.S.A. (2007). Modelling the Economic Value of Credit Rating Systems. Journal of Banking & Finance, 31(1), pp. 181-198. DOI: 10.1016/j.jbankfin.2006.01.003.
Jeon, D.-S. and Lovo, S. (2013). Credit Rating Industry: A Helicopter Tour of Stylized Facts and Recent Theories. International Journal of Industrial Organization, 31, pp. 643-651. DOI: 10.1016/j.ijindorg.2013.02.004.
Spuchľáková, E., Valašková, K. and Adamko, P. (2015). The Credit Risk and its Measurement, Hedging and Monitoring. Procedia Economics and Finance, 24, pp. 675-681. DOI: 10.1016/S2212-5671(15)00671-1.
Van Laere, E., Baesens, B. (2010). The Development of a Simple and Intuitive Rating System Under Solvency II. Insurance: Mathematics and Economics, 46(3), pp. 500-510. DOI: 10.1016/j.insmatheco.2010.01.008.
Weissova, I., Kollar, B., Siekelova, A. (2015). Rating as a Useful Tool for Credit Risk Measurement. Procedia Economics and Finance, 26, pp. 278-285. DOI: 10.1016/S2212-5671(15)00853-9.