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banking Rating: know to master it.



The rating is the set of test procedures and calculation through which a bank assesses how risky a customer is and what it will be productive in the future if he were given the credit he asks. Rating is calculated using the "probability of default" or the PD (probability of default) associated with each class of risk measured in years past, gather new information on the ability to generate future income of the beneficiary. The Basel II rating
change significantly compared to the past and is based on a lot of flexibility, but remain tied to a cross-check of institutions inside and outside the institution. Basel II, in fact, introduces the possibility for the banks, to support the credit ratings agencies specialized ECAI (External Credit Assessment Institution), rating products internally. This means that banks can acquire detailed instruments aimed at measuring the risk. In addition to the standard methodology, we find the method of measurement IRB (Internal Rating Based Approach), divided in turn in the basic method and the advanced method. This new procedural
provides much more information relevant and can do much more practical and realistic assessments.
The fact that banks can use their analytical tools implies, of course, the need to ensure the principles of transparency and homogeneity. Banks will have to refer to models that are rooted in procedures automated, so a rating system appears to be the whole collection, selection, coordination, and evaluation of information on subjects that make up the bank's loan portfolio, the rules that govern the operation, the classes of risk and the probability of insolvency that they are involved.
The process and its methods are also more independent and supervised by different structures and is specifically sought a strong internal consistency of models and a break of at least three years to check its validity: for the Italian institutions are already taking those models in view of the entry into force of legislation in 2007. The "supplier rating", to be comply with Basel II, will meet a number of requirements, in particular concerning the transparency and uniformity in the criteria used. A bank also can "draw" rating from many sources, but always in accordance with a set of rules designed to prevent opportunistic behavior. For example, you can choose, for each client, the agency that awards the best rating, thus reducing the total capital requirement.
approach to rating changes involve additional costs from an operational standpoint. Also ensure more information, more realistic and precise, even more to the changing reality. It is easier to calculate the true percentage risk and avoid taking unnecessary risks on the one hand and identifying exactly, on the other hand, the proportion of provision that should be provided to avoid establishing too high and then having to reload its costs on the customer.

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