Rating Assignments: Lessons from International Banks

Guglielmo Maria Caporale, Roman Matousek and Chris Stewart

No 868, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: This paper estimates ordered logit and probit regression models for bank ratings which also include a country index to capture country-specific variation. The empirical findings provide support to the hypothesis that the individual international bank ratings assigned by Fitch Ratings are underpinned by fundamental quantitative financial analyses. Also, there is strong evidence of a country effect. Our model is shown to provide accurate predictions of bank ratings for the period prior to the 2007 - 2008 banking crisis based upon publicly available information. However, our results also suggest that quantitative models are not likely to be able to predict ratings with complete accuracy. Furthermore, we find that both quantitative models and rating agencies are likely to produce highly inaccurate predictions of ratings during periods of financial instability.

Keywords: International banks; ratings; ordered choice models; country index (search for similar items in EconPapers)
JEL-codes: C25 C51 C52 G21 (search for similar items in EconPapers)
Pages: 26 p.
Date: 2009
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dcm and nep-fmk
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Ratings assignments: Lessons from international banks (2012)
Working Paper: Rating Assignments: Lessons from International Banks (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp868

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