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Regular version of the site

Article

The multiplication of the credit rating agencies efforts under IRB approach

Investment Management and Financial Innovations. 2012. Vol. 9. No. 4. P. 78-88.

This article conducts a study of multiplying the credit rating agencies efforts. These opportunities are practically important in connection with implementation of the IRB approach. The author considers Russian commercial banks as one of the main examples of using proposal methods, so in addition to literature overview the paper includes review of the Russian banking system and rating activities.

Firstly, the author discussed the rating scales mapping for comparison of rating estimations of different agencies. Then, he proposed the distance method with the connected extremum problem to find compatible mapping functions for rating scale correspondence.

Secondly, the paper considered the possibility of rating model system creation for financial institutions. The bank rating models in order logit interpretation are discussed simultaneously for resident (Russian) and non-resident institutions. In addition, the specification of bank models’ characteristics and their quality were considered for the three largest international rating agencies also as econometrical models for corporates and sovereign were presented.

The results reviewed can help to apply basic instruments for practical applications of such models to the risk management problems, which are based on the public information and remote estimation of ratings. Commercial banks and government financial regulators may be perspective consumers of the proposed methods.