Credit Risk Rating Systems at Large US Banks

by William F. Treacy of the Federal Reserve Board, and
Mark S. Carey of the Federal Reserve Board

January 2000

Abstract: Internal credit risk rating systems are becoming an increasingly important element of large commercial banks' measurement and management of the credit risk of both individual exposures and portfolios. This article describes the internal rating systems presently in use at the 50 largest US banking organizations. We use the diversity of current practice to illuminate the relationships between uses of ratings, different options for rating system design, and the effectiveness of internal rating systems. Growing stresses on rating systems make an understanding of such relationships important for both banks and regulators.

JEL Classification: G20, G21.

Keywords: Ratings, Credit risk, Risk management, Bank risk.

Published in: Journal of Banking & Finance, Vol. 24, No. 1-2 , (January 2000), pp. 167-201.

Previously titled: Credit Risk Rating at Large U.S. Banks

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