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Rating and Bank-Firm Relationship

In: Credit Rating and Bank-Firm Relationships

Author

Listed:
  • Michele Modina

    (Università degli Studi del Molise)

Abstract

An internal rating system is made of “the articulated whole of organizational methods and processes which allow to reach the classification on an ordinal scale as to the creditworthiness of a subject and which, therefore make the distribution of all credit borrowers in different risk classes, to which different probabilities of insolvencies correspond” (De Laurentis, 2001). In other words, credit rating is an instrument able to estimate the probability of insolvency of a company, expressed in terms of probability on a specific temporal horizon. These models are not based on abstract hypotheses but are generated by databases which accumulated years of measurements regarding default events which occurred in different economic, technological and operational conditions. The introduction of said system has had significant importance as it occurred in a context in which the transitions of risk were evaluated with a track character (acceptance/nonacceptance).

Suggested Citation

  • Michele Modina, 2015. "Rating and Bank-Firm Relationship," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Credit Rating and Bank-Firm Relationships, chapter 7, pages 127-140, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-1-137-49622-5_8
    DOI: 10.1057/9781137496225_8
    as

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