June 2000 - The Basel Committee has proposed linking capital asset requirements for banks to the banks' private sector ratings. Doing so would reduce the capital requirements for banks that lend prudently in high-income countries; the same incentives would not apply in developing countries....

What is the relative contribution of sovereign risks and firm-level credit risks in a firm's rating assignment? Or, stated otherwise, what is the information content of these components in a firm's rating? This paper intends to examine this issue, which has not been adequately addressed so...