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Does Pooling of Financial Statements and Default Data across Specialized Banks Improve Internal Credit Rating Systems?
Credit and Capital Markets – Kredit und Kapital, Vol. 38 (2005), Iss. 3 : pp. 401–433
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Hergen Frerichs, Frankfurt/M.
References
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Abstract
Under the new Basel capital accord, banks will have the opportunity to estimate default probabilities for regulatory capital calculation. In the European Union, most banks will implement the internal ratings based approach, as most corporate customers are not externally rated. Based on data from Deutsche Bundesbank and using a simulation approach, this paper addresses the issue whether pooling of data improves rating system quality even if participating banks are regionally or sectorally specialized and the pooling does not take these factors into account. The primary result is that even under these circumstances pooling is beneficial for most small and medium-sized banks independent of their specialization. (JEL G2, G21, G28, C52)