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Under the new regime capital requirements for many banks will be based on their own assessments of probability of default of individual borrowers.
This makes the choice of rating system, from amongst countercyclical, procyclical & neutral, very important. Procyclical ratings could have macroeconomic consequences by encouraging overlending in booms and reduction in lending in recessions...
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Procyclical ratings could have macroeconomic consequences by encouraging overlending in booms and reduction in lending in recessions.
The banks' higher capital levels and the improvements in risk measurement and management processes contribute to the safety of system. The important thing is, that the financial analysts--government and private sector?should stay "ahead of the curve...
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