Handbook of Ratings: Approaches to Ratings in the Economy, Sports, and Society
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.
We examine the synergy of the credit rating agencies’ efforts. This question is important not only for regulators, but also for commercial banks if the implementation of the internal ratings and the advanced Basel Approach are discussed. We consider Russian commercial banks as a good example where proposal methods might be used. Firstly, a literature overview was supplemented with an analysis of the activities of rating agencies in Russia. Secondly, we discussed the methods and algorithms of the comparison of rating scales. The optimization task was formulated and the system of rating maps onto the basic scale was obtained. As a result we obtained the possibility of a comparison of different agencies’ ratings. We discussed not only the distance method, but also an econometric approach. The scheme of correspondence for Russian banks is presented and discussed. The third part of the paper presents the results of econometric modeling of the international agencies’ ratings, as well as the probability of default models for Russian banks. The models were obtained from previous papers by the author, but complex discussion and synergy of their systematic exploration were this paper’s achievement. We consider these problems using the example of financial institutions. We discuss the system of models and their implementation for practical applications towards risk management tasks, including those which are based on public information and a remote estimation of ratings. We expect the use of such a systemic approach to risk management in commercial banks as well as in regulatory borders.
One of the most important indicators of company's success is the increase of its value. The article investigates traditional methods of company's value assessment and the evidence that the application of these methods is incorrect in the new stage of economy. So it is necessary to create a new method of valuation based on the new main sources of company's success that is its intellectual capital.