Credit ratings and the BIS capital adequacy reform agenda

Edward I. Altman, Sreedhar Bharath, Anthony Saunders

Research output: Contribution to journalArticle

28 Citations (Scopus)

Abstract

In this paper, we have revised and updated our earlier study in order to analyze the most recent (second) draft of the BIS's proposed reforms of bank capital requirements. We conduct Monte-Carlo experiments using data on defaults and severity rates on publicly-traded US corporate bonds over the 1981-1999 period. Analyzing the whole period and various sub-periods, it is clear that the most recent draft of the BIS proposed reforms seriously overestimates the relative riskiness of high-quality debt relative to low quality debt in the so-called standardized model. As a result, the most recent proposal still contains inherent risk-shifting (taking) incentives for banks.

Original languageEnglish (US)
Pages (from-to)909-921
Number of pages13
JournalJournal of Banking and Finance
Volume26
Issue number5
DOIs
StatePublished - 2002
Externally publishedYes

Fingerprint

Debt
Agenda
Draft
Credit rating
Capital adequacy
Riskiness
Bank capital
Severity
Monte Carlo experiment
Corporate bonds
Incentives
Capital requirements
Inherent risk
Risk-shifting

Keywords

  • Basel II
  • Bond defaults
  • Capital adequacy
  • Credit ratings
  • Default losses

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

Cite this

Credit ratings and the BIS capital adequacy reform agenda. / Altman, Edward I.; Bharath, Sreedhar; Saunders, Anthony.

In: Journal of Banking and Finance, Vol. 26, No. 5, 2002, p. 909-921.

Research output: Contribution to journalArticle

Altman, Edward I. ; Bharath, Sreedhar ; Saunders, Anthony. / Credit ratings and the BIS capital adequacy reform agenda. In: Journal of Banking and Finance. 2002 ; Vol. 26, No. 5. pp. 909-921.
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