It is somewhat ironic that while the major focus of regulators and institutions in the financial services sector over recent years has been on developing models for measuring and managing credit risk, most of the large losses in financial institutions over this time have been sourced to...

This paper develops a framework for examining the impact of changes in the solvency standard of a bank (target credit rating) on the pricing of bank assets. We show that the decision of a bank to increase its solvency standard increases the price of bank assets to the extent that a bank prices...