{"title":"Modelling the Economic Value of Credit Rating Systems","authors":"Rainer Jankowitsch, W. Schwaiger, Stefan Pichler","doi":"10.2139/ssrn.675668","DOIUrl":"https://doi.org/10.2139/ssrn.675668","url":null,"abstract":"In this paper we develop a model of the economic value of a credit rating system. Increasing international competition and changes in the regulatory framework driven by the Basel Committee on Banking Supervision (Basel II) called forth incentives for banks to improve their credit rating systems. An improvement of the statistical power of a rating system decreases the potential effects of adverse selection, and, combined with meeting several qualitative standards, decreases the amount of regulatory capital requirements. As a consequence, many banks have to make investment decisions where they have to consider the costs and the potential benefits of improving their rating systems. In our model the quality of a rating system depends on several parameters such as the accuracy of forecasting individual default probabilities and the rating class structure. We measure effects of adverse selection in a competitive one-period framework by parametrizing customer elasticity. Capital requirements are obtained by applying the current framework released by the Basel Committee on Banking Supervision. Results of a numerical analysis indicate that improving a rating system with low accuracy to medium accuracy can increase the annual rate of return on a portfolio by 30 to 40 bp. This effect is even stronger for banks operating in markets with high customer elasticity and high loss rates. Compared to the estimated implementation costs banks could have a strong incentive to invest in their rating systems. The potential of reduced capital requirements on the portfolio return is rather weak compared to the effect of adverse selection.","PeriodicalId":410187,"journal":{"name":"FEN: Institutions & Financing Practices (Topic)","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2004-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128309941","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Debt Ownership Structure and Legal System: An International Analysis","authors":"F. López-Iturriaga","doi":"10.2139/ssrn.411701","DOIUrl":"https://doi.org/10.2139/ssrn.411701","url":null,"abstract":"This paper is concerned with the ownership structure of corporate debt from an institutional perspective. We try to identify the factors affecting bank debt use from an international sample of companies from Austria, Germany, Japan, Belgium, France, Italy, Holland, Spain, Portugal, Finland, Sweden and the USA. Our results show that bank debt depends both on factors specific to each company and on institutional features of each country. More exactly, we find that bank loans are related to firm size, to the quality and risk of the projects, and to the collateral. We also find a number of legal-institutional factors impacting on the source of firms' debt, such as creditor protection, firm disclosure requirements and law enforcement.","PeriodicalId":410187,"journal":{"name":"FEN: Institutions & Financing Practices (Topic)","volume":"9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2003-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125130968","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Excess Capacity in Banking: Fact or Fiction?","authors":"B. Gup, Pankaj Agrrawal","doi":"10.2139/ssrn.2628587","DOIUrl":"https://doi.org/10.2139/ssrn.2628587","url":null,"abstract":"Discusses excess capacity in the banking industry in the United States and its consolidation. Bank definitions; Bank growth and competition; Profitability.","PeriodicalId":410187,"journal":{"name":"FEN: Institutions & Financing Practices (Topic)","volume":"8 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126244195","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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