An increase in the credit rating on an organisation?s debt is generally perceived positively, as higher credit ratings are, in the main, associated with lower perceived volatility in the market value of the assets of the entity that has issued the debt. If banks price their assets to realise a...

All banks must hold capital equal to the minimum regulatory requirement. However, in many cases the level of regulatory capital diverges from the actual (economic) capital held by banks. A bank's actual capital is typically linked to a target credit rating, which is in turn determined by the...

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...