Estimates of average default probabilities for borrowers assigned to each of a financial institution's internal credit risk rating grades are crucial inputs to portfolio credit risk models. Such models are increasingly used in setting financial institution capital structure, in internal control...

Now in prospect is a major revision of international bank capital regulations that would embody recent advances in credit risk measurement and management. Previous regulations have been simpler in structure, with a primary goal of getting capital requirements right on average, and thus have...