credit risk

The report offers an econometric study of the 2 bank ratings given by Moody's Investors Service. As outlined by Moody’s methodology, foreign-currency long-term deposit ratings are given based on Bank Financial Strength Ratings (BFSR), considering “external bank support factors” (joint-default analysis, JDA). Models for the (unobserved) external support are introduced, ...

One shortcoming in the existing models for credit scoring is the assumption that all borrowers are at-risk, i.e. they must default in the long run. With this assumption, the models’ performance gets skewed in the sense that the probability of default for “good” borrowers is overestimated. To overcome this problem, ...