Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/76963
Authors: 
Frerichs, Hergen
Wahrenburg, Mark
Year of Publication: 
2003
Series/Report no.: 
Working Paper Series: Finance & Accounting, Johann Wolfgang Goethe-Universität Frankfurt a. M. 115
Abstract: 
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.
Subjects: 
Basel II
bank regulation
credit ratings
credit risk
JEL: 
G2
G21
G28
C52
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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