The new Basel II regulation contains a number of new regulatory features. Most importantly, internal ratings will be given a central role in the evaluation of the riskiness of bank loans. Another novelty is that retail credit and loans to small and medium-sized enterprises will receive a special...

In this paper we apply a bivariate probit model to investigate the implications of bank lending policy. In the first equation we model the bank's decision to grant a loan, in the second the probability of default. We confirm that banks provide loans in a way that is not consistent with default...

To evaluate loan applicants, banks increasingly use credit scoring models. The objective of such models typically is to minimize default rates or the number of incorrectly classified loans. Thereby they fail to take into account that loans are multiperiod contracts for which reason it is...