With the New Basle Capital Accord banks' capital requirements are determined with risk weights based on internal and external ratings and probabilities of default (PD's). PD's are mostly estimated from historical default rates. In recent working papers the Basle Committee on Banking Supervision...

Credit ratings are commonly used by lenders to assess the default risk, because every credit is connected with a possible loss. If the probability of a default is above a certain threshold, a credit will not be provided. The purpose of this paper is to test whether credit ratings contribute...